How corporate treasurers can make the most of the API economy and Open-banking?
WHAT PSD2 AND OPEN-BANKING MEAN TO TREASURERS?
PSD2 sets a framework for redefining the European payments ecosystem. The directive aims to encourage innovation and competition by facilitating new market entrants, enhance the transparency and security of payment services and finally allows businesses & consumers to view and execute their banking and transaction activity in a unified manner across the European Economic Area (EEA). It promotes the new world of EU open-banking (access-to-payment accounts through real-time APIs) on 14th September 2019 and encourages greater competition in the bank space and a better collaboration between traditional banks and innovative fintechs.
Banks are very late in the implementation of their API hubs (shared or not) and have not much communicated on this new evolution with their corporate clients. So far open-banking didn’t have a real impact on Europe’s Corporate treasurers. This was confirmed during the EuroFinance International Treasury Management conference where 55% of the delegates responded that they didn’t consider PSD2 to be relevant for their business, as the experience of wholesale or industrial businesses is quite different from real-time payments or application program interfaces (APIs) consumed by consumer mobile APPs. Most treasurers are still waiting to see what new products and services their banks are able to deliver in the future.
One of the challenges forced by the PSD2 is that banks (AS-PSPs) need to implement an open API infrastructure, but no API standards, to connect, are imposed on Third Party Payment providers (TPPs, including banks) by the EBA Regulatory Technical Specification (RTS). TPPs and treasurers are facing the challenge of hundreds of standards from thousands of banks across Europe.
HOW CAN OPEN BANKING TRANSFORM THE FUTURE OPERATIONAL MODELS OF Treasuries?
Open banking and APIs are speeding up innovation and help sorting out traditional pain points due to manual and repetitive tasks that can now be automated in a secure way through APIs. The API Economy allows to easily integrate with one another and share data in real time. This functionality can be directly integrated with Enterprise Resource Planning systems (ERPs) or Treasury Management Systems (TMSs), allowing for a more streamlined the invoicing process (both paper and electronic invoices);
The open banking APIs will allow corporates to get in real-time through a TPP (licensed by the national bank authorities: CSSF (L), ACPR (F), BAFIM (D), FCA (UK) …) all Account Information (TPP-AISP) services like balance information and Payment Initiation (TT-PISP) services like initiation of “just-in-time” credit transfers. One of the topics to be addressed by Corporate treasurers is about the benefits of real-time payments and instant account balances to replace the MT940 bank account statements. Most treasurers pay out today on a weekly to monthly basis, not using real-time (for the moment), but are interested in real-time payment collections information through PSD2 bank APIs.
Corporate treasurers have to launch NOW a strategic study to better understand these new technologies made available by banks and how to rethink their existing treasury solutions and review their overall business models.
WHAT ARE YOU CONSIDERING AS THE MOST EMERGING TECHNOLOGIES FOR treasurers IN THE COMING YEARS?
There are many emerging technologies that can make treasurers more performant in the upcoming years, one of the them is “Cloud Computing” that is applicable across the corporation through a complete integration of a cloud-based Treasury Management Systems (TMS) or ERPs. A second one is to integrate with the “Application Programming Interfaces” (APIs) economy to obtain a real-time visibility of payment status & cash balances, streamline FX execution or confirmation and to propose real-time credit transfer initiations. A third one is “Robotic Process Automation” (RPA) that can be deployed across the corporation to obtain real-time price quotations & executing of FX transactions, creating accounting entries for inter-company netting & payments, preparing bank account reconciliations, as well as identifying and verifying information in payment advice emails for cash application. A fourth could be “Machine Learning” (not AI) that could be useful in the front office for forecasting cash receipts/incoming payments to address working capital issues, but also in the back-office to detect payment frauds and anomalies. The last one is about the “Blockchain or Distributed Ledger Technology” (DLT) which is still in an early stage of adoption because existing laws and missing business cases are often the main blocking factors. In the future the blockchain technology/DLT could simplify trade-finance, payments and information sharing, as it’s a very open and transparent general ledger that connects all parties 24/7 to settle a deal.