The Payment Service Directive (PSD2) and open banking, in general, are instituted to promote competition that would provide better value for financial clients. With a financial revolution underway, what do corporates expect from PSD2 that banks and fintechs can provide value on?
Connectivity and Seamless Integration
Finance for corporates is like a conductor that connects all the instruments in an orchestra; a central point where all the functions of a business can be accessed. However, with corporates having multiple accounts in different banks, the dream of one connectivity point to their banking world has been nothing but that, a dream.
However, thanks to account aggregation that comes with PSD2, corporates expect to be able to access all of their services from one interface. Furthermore, as aggregation provides an influx of data about business’s financial behavior, corporates expect high-value advisory services to help them manage their cash flow better, improve their investment portfolios and gain insights into specific industries in a way that has never been possible before.
In an increasingly digitised world where every function of a business is run by software, from accounting, treasury management to customer relationship management (CRM), corporates have desired the seamless integration of these functions with their banking systems.
Furthermore, in majorly digitised business ecosystems like the e-commerce industry, where merchants’ operations are powered by multiple players; from backend logistics, payment processing, to card acquiring with merchant portals. PSD2’s ability to integrate all these is synonymous to increased operational efficiency for corporates.
Innovation and frictionless payments
Corporates expect PSD2 through its subsequent impact on account aggregation, new third-party payment initiation capabilities as well as fintech-bank partnerships to bring about new products and innovations that remove pain points in administration.
These include improvements in more efficient cross-border payment routing as well as smoother and timely account reconciliation.
PSD2, allows third parties to register as Payment Initiation Service Providers (PISP) with the capabilities of initiating payments directly from a customer’s bank accounts. This brings an expectation of faster transactions to any corporate that accepts payments online whether a retailer of physical products or a service provider with monthly subscribers.
As a result, corporates expect PSD2 to enable them explore innovations around instant payments, direct debits, one-click payments from online invoices etc.
On the negative end, according to a 2019 study by the Emerging Payments Association (EPA), corporates expect increased friction from the PSD2’s fraud prevention Strong Customer Authentication (SCA) requirements to a point of growing step-up authorisation requests from the current 2%-4% of transactions to 30-50%. Extra authorization steps such as One Time Passwords (OTP) delivered via SMS, and the use of 3DS technology have been singled out as expected points of customer friction.
Banks that provide businesses with better transaction authentication methods e.g. biometric, in-app etc. as well as explore payment innovations in artificial intelligence will have an advantage in capturing the interest of corporates.
In conclusion, corporates expect a lot from the open banking wave. Banks must be there to deliver.