Corporates waited too long for account aggregation
Corporates Waited for Bank Account Aggregation for too Long, PSD2 Will Serve it on a Platter
History never forgets, 17 years ago, three companies: Citibank, Money Supermarket and Egg were the only financial services institutions in the UK offering bank account aggregation services to their clients. However, from September 14th 2019, thanks to the Payments Service Directive II (PSD2), no bank within the European Union will have that choice anymore.
According to the PSD2, all European banks hosting online accounts are obliged to share their (previously-guarded) client data, with Third-Party Service Providers at the consent of the account holder. However, these third parties will have to be registered as Account Information Service Providers (AISPs) and/or Payment Initiation Service Providers (PISPs) to be able to securely receive this information through APIs. These may include competing banks, fintechs or even non-financial institutions like welfare clubs.
The Problem PSD2 Solves for Corporates
In an increasingly global world, companies are generating tons of data from their different functions i.e. accounting, procurement etc. One of the biggest headaches currently for businesses is integrating this data to generate timely insight for decision making.
However, at the moment the process is tedious and slow, particularly with financial data where corporates spend endless hours logging into their different bank accounts; downloading, sorting and merging their records of transactions. By the time they are done, the information is outdated and deadlines as past.
Corporates have been experiencing this problem for a while, for instance in 2012, a study by Robert Half and Financial Executives Research Foundation found that 97 % of companies with less than $25 million in revenue had between 100-500 general ledger accounts that they reconciled every quarter.
Additionally, more than 25 % of the surveyed companies had in excess of 1,000 general ledger accounts that were reconciled per quarter. Even with automation, reconciling all this information with account records from different banks requires reaching out to them individually. This is where today PSD2 brings a revolution.
Benefits of Open Banking to Businesses
Open banking through the PSD2 directive will enable businesses to connect their account data from various banks to their existing business systems and enable integration. Operations will be improved by integrating bank account information with enterprise resource planning (ERP) and treasury management systems. This will facilitate features like instant notification of all company bank account activities, that will not only increase transparency and security but also the speed of decision making, which is reliant on different data points.
Additionally, through collaboration with fintechs and banks, businesses will be able to create addon financial products for their clients using insights obtained from the data. The banks that choose to embrace this revolution can play an advisory role to support these new products.
Open banking will enable businesses to streamline their payments routing process to increase speed and save costs, this is especially important for businesses that transact across borders. A 2015 study by Barilliance , found that among the top reasons for a 74% cart abandonment rate by online shoppers was an inefficient payment routing process. Open banking will play a big role in reducing this number.