Will PSD2 and APIs fuel the growth of Buyers Clubs?

 or Buying Club is a club organised to pool members’ collective buying power, enabling them to make purchases at lower prices than are generally available, or to purchase goods that might be difficult to obtain independently.  These Buyers Clubs can also describe themselves as “consumer networks” or “cost of living” clubs.

These Buyers’ Clubs or consumer networks use combined people power to unlock group discounted offers on various household bills.  The clubs focus on arranging group discounted offers on recurring expenses such as household energy, home broadband and telephone calls.  We can also see some examples of financial customers pooling their collective buying power to source offers for financial products e.g. mortgages, credit cards and life, home and car insurance.

The effort for the consumers to enter the process is low. Joining is obligation and cost free.  The consumer registers to demonstrate their support. It only takes a few moments, it costs them nothing and they are not obliged to take up any offers that the Buyers Club negotiates.  The consumers that become members are free to merely use the Club offers as leverage to shop around or to see if they can get a better deal from their existing providers. 

The Club deals may not beat the consumers’ current deals.  Some consumers are on legacy deals and special deals that are not available cost-free to the general public. Other providers could also be compelled to compete with Buyers Club offers by offering more competitive offers. The Buyers Clubs differ from Price Comparison Websites in that they effectively create products and prices rather than compare them. They generate offers for Club members that are not available to individuals. The Buyers Club earns a fee from the businesses that earn customers through specific campaigns.

At this stage of their evolution, there are many things about the registered buyers that the Buyers Club does not know.  The Club does not specifically know the current vendors that each individual buying consumer or household uses for the typical utility or mass-market financial products. Obtaining the legal entitlements of an Account Information Service Provider (AISP) under would allow the Buyers Club (with individual buyer consent) to identify the actual vendors from Payment Account narratives.  Buyers Clubs could inform themselves about their collective negotiating power with individual vendors by data-mining aggregated Payment Account data.

There will be limitations in the Payment Account data.  Many individual vendors have a standard range of products, services and pricing packages that a buyer can choose from.  It will not be instantly clear from Payments Account data which product or product variant that the consumer or household is currently using. However, the information available on the precise products and services in use in a household is also growing and is increasingly likely to be accessible in the API Economy.  Buyers Clubs could begin (with buyer consent) to gather data on the precise products and usage patterns of consumer services.

Domestic robots are emerging to control household utility services.  An increasing number of people monitor and change temperature settings in their home remotely from their smart phone. Smart meters will form the first smart interface between the utility grids (such as electricity, gas, drinking water) and the local utility system within households. Smart meters make it feasible for utility customers to have very flexible contracts based on greenness, time of day and day of the week. This data can be connected to actual spending in Payment Accounts after PSD2.

Smart appliances seem likely to become part of the household in the future. The smart fridge, dish washer, washing machine and so on will start communicating with the smart grid and find the greenest or the cheapest time to use power and water. Smart fridges may even keep track of consumables and order supplies at the local super market using a PSD2 Payment Initiation API.  We can conceive of an environment when the owners of these smart appliances are sharing data on their usage patterns and their financial purchasing patterns in an aggregated services layer.

PSD2 in Plain English (Payments Landscape
for Non-Specialists) (Volume 1)

While PSD2 will make the data in every Payment Account in every Account Servicing Payment Service Provider (AS PSP) in the EEA available to an aggregation layer (with client consent), there is a reasonable possibility that EEA consumers could be using a predictable range of smart home devices in tandem.  Alphabet offers both Google Home and Nest.   Like Amazon Echo, these are always-listening devices that can answer queries, check schedules and work with third-party smart home devices.  Apple seems likely to follow with HomeKit.  Data on the devices and services being used in the home seem likely to be concentrated on a small number of platforms.  In crude terms, Buyers Clubs will probably be able to use this small number of buying platforms to understand and reconcile the devices and services being used with the amounts and narratives in the Payment Accounts.

Buyers Clubs may also become able to connect spending on health insurance premia with the actual health of the insured.   An increasing number of connected systems are used to monitor health. Pacemakers and insulin pumps can have a wireless interface. Health monitoring and other medical equipment in hospitals is increasingly connected to the hospitals’ core network.  In the face of high costs of specialist drugs and health insurance for people with known conditions, there will be significant incentives for patients to aggregate their spending patterns and health indicators into a Buyers Club structure.

The Payment Accounts of consumers and households can hold extensive data on significant transport expenditure (insurance, fuel, tax, maintenance etc.).   In the case of private transport, modem cars contain an enormous amount of code in an increasing number of electronic control units.  Cars are now “computers on wheels.” The code modules monitor an increasing number of sensors and control and activate many actuators from lights to collision avoidance systems. As many manufacturers develop modules, the interfaces between them need to be open.  This suggests that data on motoring expenses and data on motoring patterns could be open to be shared by buyers in an aggregated Buyers Club.

Of course, there are more than a few details to be sorted out before this connected future becomes a safe and mature reality.  This level of connectivity between devices, payment service providers, buyers and suppliers could be a hacker’s paradise during the immature phase of its development.

From a cyber-security perspective, there is a sharp contrast between the introduction of the PSD2 and the evolution of the connected devices described above.  In broad terms, the security standards on the PSD2 APIs are being centrally planned, centrally designed and collectively implemented.  There will be obligations on registered participants under PSD2 to report security incidents, follow rulebooks and stay compliant with new risk management measures to counter evolving security threats.

In parallel to the controlled PSD2 introduction of payment and payment data APIs, the next broad innovation cycle is likely to be the Internet of Things (IOT), where the devices that people buy/rent and use become connected.   Almost any device will have an internet address, communicate what it senses and may activate its actuators. Innovators will conceive interesting new functions and bright technical people will implement them. However, cyber security lessons identified about threats and risk to current and previous innovation cycles sometimes do not make their way into the next innovation cycle. People with the bright innovative ideas are often not educated in cyber security and neither are many of the programmers who implement their ideas. They can neglect the old threats which provide attack paths to cyber criminals.  

In crude conclusion, PSD2 will allow consumers and households to decide to share data on how they spend their money both with their peers and with a wider range of service providers.  PSD2 could allow Buyers Clubs to play a far more incisive role in identifying, assembling and empowering peer groups of consumers to negotiate collectively with vendors.  The emerging ability of the Internet of Things to inform the buyers on their usage patterns of devices and services will strongly reinforce the economic value of this process.  However, the use of device APIs to add data into an aggregation layer by a PSD2 AISP could cause new cyber-security risks that will need to be identified and considered.

 [linkedinbadge URL=”https://www.linkedin.com/in/paulrohan” connections=”off” mode=”icon” liname=”Paul Rohan”] , the author of this post, is also author of “PSD2 in Plain English”.

PSD2 in Plain English (Payments Landscape
for Non-Specialists) (Volume 1)