The Revised Payments Services Directive (PSD2) has a lot to offer corporate treasury professionals, particularly when it comes to payments. Unfortunately, it hasn’t received a whole lot of attention in the United States—but that soon may change. And it needs to.
Europe has seen a lot of buzz and discussions around PSD2. With the mandate in place, things are most definitely changing. Banks are no longer able to be as protective of their client data as before, and new innovative players will certainly move in and offer products and services that European corporates can benefit from.
The PSD2 regulation, which aims to create an equal playing field for payments service providers, went into effect in January of 2018. It mandates banks to provide third-party providers and others who meet the requirements access to their customers’ bank account information, provided they have customers’ consent. This practice is referred to as open banking.
There are many potential use cases for PSD2 and open banking, and one in particular would allow corporates to ask their customers for permission to use their bank account details and receive the payment straight from the customer’s bank, without any intermediaries. In other words, this could mean that corporates could get paid directly and the payments could potentially be much cheaper.
Even though this European mandate is in effect, several European countries stated early on that they would not be in a position to implement PSD2 by the deadline, which was in January of last year. There are still a number of countries, including Italy, The Netherlands and Spain that have not been able to get the regulation through their legal procedures.
In other parts of the world, the views on open banking vary considerably. Australia and Hong Kong are probably closest to adoption. In Singapore there are not requirements for open banking, but the government supports a number of initiatives.
In the United States, the development of open banking is not something that will likely be mandated, but instead organically driven forward by private forces. That’s likely to happen, given the promises that open banking offers; such as greater transparency and competition within the financial services infrastructure. But it will be driven by customer demands. Indeed, it does seem that there are some indications that U.S. banks are already realizing that this trend would actually open up not only their data, but potentially also new business opportunities.
PSD2 and APIs
For corporate treasurers, opening banking offers many opportunities, as our latest Payments Guide notes. With application programming interfaces (APIs), which are the conduit that provides for open banking, corporate treasurers can gather the financial information from multiple banking partners into one location, and get a holistic view of the company’s financial situation. APIs also have the potential to move corporates beyond the batch process for payments, eventually allowing for a real-time connection.
When it comes to APIs, there certainly is a learning curve for corporates. It is a fair question to ask whether or not corporates actually will look into, and actively pursue what open banking can offer. Just because banks are mandated to allow access does not mean corporates will jump through hoops to invest their valuable time to make any changes to their regular routines.
One dilemma with different banks developing their own APIs is that there is a risk of fragmentation in the market due to lack of standardization. NACHA has been quick on realizing this and started a group aiming to develop standardized APIs. After a couple of twists and turns, including a merger with IFX Forum, NACHA formed the Afinis group. This group has identified a couple of fields where standardized APIs would be of particular use.
In the end, corporates from Europe, the U.S. and Asia would be wise to read up on PSD2. New technologies emerge in the payments field and some of them will most likely have a broad impact. Knowledge of these developments will position organizations well to reap the benefits offered.
For more insights on APIs and open banking, be sure to download APIs: The Search for Ubiquity and Standardization, AFP’s new Payments Guide, underwritten by MUFG Union Bank.