For obvious reasons, some banks have not made it easy for these upstarts to operate. In response to this, Open Banking, a UK regulation, and PSD2, its EU cousin, essentially require that banks open up their data to vetted third parties.
Both officially went into effect earlier this year, and while institutions have been granted extra time to become fully compliant, already, some fintechs are gearing up to take advantage.
Founded in 2015, Anorak says it’s “on a mission to build the world’s smartest independent insurance adviser.”
Its service allows individuals to perform a life insurance evaluation that takes into account each person’s family and finances. Based on the evaluation, Anorak provides advice on the type of plan it believes the individual needs, as well as three life insurance policies that its algorithms believe are aligned to those needs.
Anorak’s service scans eight major insurers and the company says that its process takes “just minutes.”
The way it accomplishes so much in such little time is that, where available, instead of having users manually supply information about their finances, it allows users to share their data from the financial institutions they have accounts with.
In a nutshell, this is what Open Banking and PSD2 are all about. By giving individuals the ability to control the information associated with their accounts, third parties, including startups like Anorak, can help them better understand their finances, and obtain recommendations for products and services that are useful to them.
The impact of this can’t be understated. In Anorak’s case, for instance, the company says that 8.5m people in the UK don’t have life insurance, and many of them could be leaving their families vulnerable as a result.
While major banks, such as HSBC, RBS and Barclays, offer life insurance, it’s not a central focus for most of them. From this perspective, fintechs like Anorak might not be as much competition as they are market expanders, and for this reason, it’s expected that banks will increasingly partner with fintechs, instead of compete with them, because in many cases they will be able to help them provide better overall experiences to their customers.
To that end, Anorak’s website indicates that it’s open to partnerships with financial institutions, as well as independent financial advisers (IFAs), mortgage brokers, real estate players and even retailers.
How will the GDPR affect Open Banking?
While companies like Anorak are demonstrating the value of Open Banking and PSD2, it’s worth noting that the GDPR, which goes into effect later this month, could complicate matters. As some have noted, the GDPR’s rules are, in some instances, seemingly in conflict with the principles of open banking and leave open questions around consent. If unresolved, these could jeopardize the implementation of Open Banking and PSD2.
Complications such as these are obviously of concern and it will be interesting to see how they are resolved but in the meantime, there’s every reason to believe that open banking regulations are going to fundamentally alter the way consumers interact with financial services in the very near future.