The introduction of revised Payment Services Directive (PSD2) in the European Union (EU) in 2018 is expected to heighten competition among the banks, open markets to non-banking challengers and foster vigorous innovation across the financial sector.
The PSD2 legal framework mandates EU banks to provide unprecedented Access to the Account (XS2A) to the trusted third-party payment service providers (TPPs) via Application Programming Interfaces (APIs) and prohibits banks from blocking such access other than for ‘objectively justifiable reasons’. As there is no provision for interchange or access to the bank’s accounts fees, PSD2 payment costs should be much lower compared to cards or other payment methods.
Treasuries of corporations that operate and trade across the globe are painfully aware of the escalating cost of bank services and trade financing. Examples include purchases, sales and transfers of emerging market currencies (typically the major corporate revenue growth area). The hidden fees and costs of such transactions effectively erode corporate profits. Recently, this situation was further magnified by the negative interest-rate environment, with retail banks charging for deposits.
“The PSD2 role as a disruptive catalyst for payments innovation is expected to intensify in the next several years, especially in the current environment of economic volatility.”
The PSD2 role as a disruptive catalyst for payments innovation is expected to intensify in the next several years, especially in the current environment of economic volatility. PSD2-supported value-add financial services provide corporations with a unique chance to rapidly grow their global trade. Internationally trading companies could deploy new, highly customised and sophisticated tools to manage cash and liquidity requirements, control risks and losses when converting currencies, and invest or transfer money across the globe.
Associated PSD2 payment institutions can make it easier and faster for the corporate treasury to integrate newly acquired subsidiaries in far-away countries. They could also help corporate treasury to structure and maintain effective worldwide control over banks’ account management, by achieving visibility over global cash flows and reducing high risk of internal and external fraud when processing invoices and approving payments.
A corporate treasury could now insist on using direct PSD2 access to their EU bank’s core system to establish efficient and cost effective account information services and cash management and to instigate high margin value-add services, such as international payments and Supply Chain Finance (SCF). By reducing the number of subsidiary bank accounts, negotiating better rates with the banks around the globe, and achieving economies of scale through centralising cash management and payments, corporate treasury could offer a significant additional share of squeezed corporate profits.
According to Accenture’s report ‘Seizing the opportunities unlocked by the EU’s revised payment services directive’, by 2020 PSD2 introduction might account for up to 16% of online payments. PSD2‑based treasury services could improve visibility of corporate cash flows while managing essential banking operations, such as viewing account balances, obtaining transaction histories or initiating payments.
“Yet another hot button treasury compliance issue is transaction screening for various sanctions”
They could also realise substantial savings on interchange fees and Forex spreads currently collected by the banks and other specialised services, rationalise liquidity management for cross-border payments, intercompany lending and netting, tailored to the specific requirements of your corporate treasury. The resulting savings could reduce corporate payment charges by as much as 70%, while speeding up clearing of funds and all but eliminating the related liquidity risk for vendors.
In addition, PSD2 treasury services could facilitate effective control over corporate subsidiaries with the use of virtual accounts. Information from subsidiary bank accounts can be aggregated to determine their overall regional cash positions. Trapped cash might be utilised as an internal low-cost source of financing. New revenue streams could be developed with virtual corporate accounts and specialised payment, supply chain finance services and lines of credit that are provided by multiple financial institutions operating around the world.
Properly developed services could effectively control security risk through strong customer authentication when connecting to bank systems. Particularly dangerous is the recent spree of high-cost impersonation fraud that first typically takes place in remote corporate locations and then rapidly spreads to other divisions through trusted corporate networks, processes and databases.
Yet another hot button treasury compliance issue is transaction screening for various sanctions. Existing mainstream Treasury Management System (TMS) and ERP technologies are not yet that effective in identifying and reliably preventing the occurrence of such problems, some of which might be ruinous for the company, as well as its stakeholders, top executives and the board.
On the other hand, for innovative corporate treasuries, the culture shock of taking full advantage of new regulatory framework, by becoming a PSD institution, with the consequent requirements of regulatory approval and ongoing compliance monitoring, could be overwhelming.
The ensuing payment interactivity management issues – such as the development of API strategy; impact of the API framework on transactional profitability; use of intelligent automation for exception management, reconciliation, repudiation or audit processes; establishing payers’ identities or providing mutual escrows – would have to be substantially advanced. This could only be done by determining transactional profitability and the potential for generating new value add revenues in the rapidly changing economic and competitive environment.
In the new highly competitive environment, a change from using closed and inflexible legacy banks or from insular corporate treasury to the open, global reach networking system could be quite challenging, especially taking into account heightened security, Know Your Customer (KYC)/compliance and privacy requirements. The resulting business and technological change would inevitably impose wide-ranging organisational restructuring, in turn affecting treasury operations, choice of technology platform and partnership strategy.
Involving key stakeholders and procurement as well as having an enthusiastic project manager is key to successfully changing banks, treasurers told the BNP Paribas Cash Management University in Paris.
While GDPR and Europe’s revised Payment Services Directive (PSD2) are not contradictory, the fact that the regulators and many banks work on them in silos is problematic, AccessPay executives argue.
We live in interesting times – at least that’s what political and economic commentators keep telling us – However, you could easily say we are experiencing very uncertain and, some might suggest, disconcerting times.
We’ve all become more impatient as digital services are increasingly real-time and in many cases instantaneous. Look at the big winners out there: Uber, Klarna and Amazon. Each organisation has innovated to reduce impatience by dramatically reducing wait time and offering real-time updates. In banking, there is a similar pattern.