PSD2 is more of an evolution, rather than a revolution, as my previous blog showed, at least for Belgian companies. PSD2 creates the right conditions to launch new and more secure payment services that simplify the financial management of your company.
This is a guest blog written by Rik Coeckelbergs.
New multibanking platforms will offer their services and existing platforms can further improve their services. Existing platforms have the right basis to get the most complete overview possible of the client’s financial situation. In addition to bilateral agreements with financial institutions, existing platforms will be able to build on the uniform user-friendliness in the future for which they are known today via PSD2.
Welcome to the data-economy
PSD2 obliges banks to open up their systems, without necessarily generating new revenue streams. In other words, the narrow interpretation of PSD2 only leads to costs for banks, without any compensation in revenues. This got banks, consultants and software providers thinking about how they can turn this legislation into an opportunity.
Financial service providers are obliged to explore the world of APIs gradually. What does it mean for companies that banks are required to share their account details via APIs?
For specific sectors, there have been some ideas for new services. Take the rental market, for example, where institutions can creatively help to follow up on payments from tenants. In the case of retailers who also rely on additional turnover through the provision of credit, the analysis of creditworthiness can be carried out in a different way when companies are given access to consumers’ account data. Services with age limitations (think of online alcohol shops, or online casinos) can get better guarantees, thanks to the connection with banks, that the customer is the right age for example.
New and existing players will come up with innovative solutions that can help their professional customers better in terms of cash flow management or accounting administration for example.
What does PSD2 mean for you as a company in terms of follow-up of accounts at different banks?
PSD2 creates opportunities for all companies that manage accounts at different banks. From then on, a freer and, above all, more structured movement of data will be possible across national borders. Pure, uniform account data is essential for companies if they want efficient accounts. Banks are obliged to provide account information updates at least 4 times a day.
PSD2 might be a milestone for more openness on the part of banks in terms of reporting, professional users may still encounter some restrictions today:
- When it comes to forwarding account information (Account Information Services), PSD2 imposes a limited dataset that may be insufficient for the professional user, particularly in terms of reconciliation in the accounts. Other formats such as SWIFT or CODA provide much richer information that can be important in business for the operational management or in the context of Compliance.
- For payments from different accounts you have to sign per bank using the bank’s own signature tool. To date, there has not been a single signature for all banks together. The management of complex payment approval processes is not included under PSD2 either.
- Every 90 days, as a company, you have to give permission to access all your bank accounts again. Not a nice prospect for companies with several – sometimes dozens – of accounts.
Platforms that manage to reach agreements with financial institutions to exceed the obligations of PSD2 via APIs are in a unique position to remain at the forefront of the Open Banking era. The real added value follows only from the moment real-time information can be received with the richness of structured account information such as camt, CODA or SWIFT messages, and this with each new transaction on the account instead of only 4 times a day.
Systems such as Isabel are perfectly placed to play a pioneering role in this and to overcome the aforementioned ‘PSD2 limitations’. It is then up to companies to organise themselves in such a way that they can take full advantage of real-time reporting.
Finance as a Business Partner in the Open Banking era
With PSD2, a basis is created to build on. Compare it to train traffic: the tracks for the steam train are now used for an electric train. Look at PSD2 as the electric train for which new power lines are now being installed above the tracks. In the future they can also be used for a high-speed train.
Reliable data are the key to a high-performance data analysis. The guarantee of reliable and structured data on European level creates huge enormous opportunities for companies. And if all this can be done in real time, a company will hold all the cards for an even shorter follow-up of your financial situation.
Suddenly smaller companies can also invest in the automation of your reconciliation and reporting. Systems can report when they need to themselves, with far more accurate data. Less energy needs to be lost to controlling because the reports are more reliable.
The time gained in this way can then be used for real value creation within the company. In combination with new technologies such as artificial intelligence and machine learning, it will be possible to evolve towards Finance as a Business partner.
The transition from controlling to advice will make it easier to enter into a dialogue with the various departments. In this way, your Finance department can enter into a proactive dialogue with the purchase and sales departments to find ways to achieve the best possible balance, with an immediate impact on the operating result.
From now on, cash flow analysis can be left to computers, which guarantee much more objective predictions. Targeted data mining can clarify matters quicker in case of unexpected results. Your financial department can formulate better answers to questions such as when surpluses of liquidity can be expected or when factoring or another form of credit may be the right choice to continue meeting your payment obligations. How can cash management be organised more cost-efficiently in the future? ?
These are all questions to which, with the right insights, more correct answers can be provided.
Finance management is all about risk control. Uniform data, preferably in real-time and in a highly secure environment, can make a world of difference in the financial management of your company. A reliable platform that puts a premium on the security of its environment will be essential in this respect. Only when your partner has sufficient guarantees that data is not polluted, can you focus on less controlling and more value creation.
And finally: thoroughly evaluate the opportunities, but also the limitations of PSD2: It is quite possible that you are already using a non-PSD2 API that offers richer information that PSD2 does not offer, which is essential for your organisation.
The Banking Scene
Rik Coeckelbergs is the founder of The Banking Scene, a set on social media channels, and a yearly conference in Luxembourg and Belgium. He is passionate about banking and payments, conceptualizing ideas and enabling sustainable business models.
Prior to his current position, he was Payments and Management Consultant at Clear2Pay (now FIS), Business Controller at Colruyt and Senior Product Manager Daily Banking at bpost bank. In 2009, he created a Linkedin community “Innovation In Payments” which today has more than 24,000 active global members. This unique mix of multi-year experiences in Finance, Strategy and Marketing within Financial Services and Retail, has given Rik a holistic view of today’s challenging financial services market. At the same time, he has this hands-on approach that allows to tackle critical challenges and put dilemmas into the right context.