This article is written by Konstantin Rabin, CEO at Forex Library.
Konstantin Rabin, eFXto.com
The latest Payment Service Directive, which will become fully effective with the beginning of next year, is impatiently awaited by third parties in the EU’s financial sector. Payment providers, online lenders, innovative banks and fintech startups – they all want to finally benefit from legal access to client data stored in banks. FX brokers are no different, since they can leverage the power of a banking API and make their business more secure and profitable.
Let’s start at the beginning. If an FX broker wants to register a new client, there is a whole lot of work to be done during customer authentication. Checking application forms, IDs, proof of address and other information is a time-consuming and tedious process both for the client and the broker. This is redundant work, since all necessary personal data is stored in banks. Not only is this information complete, but it is also already verified by the bank. It can be trusted and instantly used by a broker or any other third party – provided that there is a way to access it.
Banking API At Your Service
With the PSD2, yes, there is. Or rather: there will be when it’s ready. A banking API accompanying the Directive will allow businesses, such as FX brokers, to reach for client data in banks and authenticate a customer within seconds. All the data, which had to be entered manually, will be available soon after a client’s successful log on into his or her bank account. This instant KYC procedure saves time and effort, and helps both sides to make money sooner than before.
Then, after a positive verification, when necessary personal information is imported, a broker can use a banking API to scan all the client’s bank accounts – of course, with user consent – in order to sum up available assets and propose the best possible offer to a trader. Or, when a user is not active for quite a while, a broker can take a peek into the trader’s financial information such as account balance to see, what the probable cause of inactivity is: lack of funds or other factors not necessarily related to money (like depositing with a competitor). In the latter case, a broker can make some incentive moves and motivate the client, encouraging him or her to resume trading. In other words, brokers are empowered with a helpful tool in retention processes.
Protect Your Business
Risk management is another useful scenario for the banking API. When a broker has access to a trader’s bank accounts, it’s possible to monitor the client’s financial history. If, for a example, a broker sees that a client had been trading for a few years and his total deposits to a competitor are lower than his total withdrawals, it might be possible to conclude that such a client should go into the A-book straight away. Conversely, if client’s deposits are lower than withdrawals, a broker may B-book such a client. This way a broker can manage its risks better, based on the client’s trading history with other brokers.
The PSD2 paves the way for any external services that would want to make use of a client’s banking data in the EU. FX brokers can find several interesting usage scenarios for a banking API, which should be available soon after the Directive becomes fully effective. Nevertheless, there are commercial banking API vendors that make this data available now. Such companies as Plaid, Yodlee or Kontomatik have been providing access to the banking for years. With access to trader’s bank accounts, brokers can simplify and enhance the KYC procedure, improve risk management and retention, and automate tasks related to retention as well as payments.