We have talked about PSD2 in our previous blogs and looking forward to the full implementation of the directive in the European region. With the March 14th PSD2 deadline, banks had to oblige the TPPs (third-party providers) to access their customers’ accounts via open APIs (application program interface). With the help of open APIs, the TPPs would be able to build services on top of the data provided and take away the monopoly from the bank of holding customers’ data.
With the availability of customer’s data, financial service providers such as Google, Alibaba, Tencent, etc. are going to be able to offer services to both businesses as well as consumers. Services such as spend analysis, credit, liquidity, and investments will be available to the companies under PSD2.
Currently, the B2B payments space is lagging because of inconsistent processes, paper payments, and delayed transfer of money. Paper cheques are processes through manual processes and are costly. Moreover, there is a complex array of siloed systems, connections, as well as platforms that businesses use to support the payment processes.
A 2016 FIS survey of corporations revealed that more than 40% of businesses are working with more than five payment banks. Each bank has its own payment system for processing financial transactions. Also, more than half of the corporations are managing more than 100 different accounts. This leads to inconsistent transaction processes and formats, thereby increasing the cost of transactions.
All of this hampers the efficiencies and possibilities of innovation in an ecosystem where speed, flexibility, and reliability should be the key. Advancement in the payments technology so far has not been able to solve the problem; however, with the introduction of “API standardization” under PSD2, there seems a possibility.
Many payment providers, financial institutions, as well as businesses have initiated the experimentation on the use of APIs in B2B lending to increase automation, develop more consistency, and support interoperability. FinTech developers have already started working to create new invoice finance as well as a new line of credit prepositions for B2B lending based on data gained from open APIs.
What becomes a question here is, will the businesses be open and let the TPPs access inside information? The question can be answered in times to come. However, it all comes down to trust, security as well as the value proposition these TPPs are going to offer. In this world where every business faces a constant security threat, safeguarding the financial data is a top priority, and TPPs need to guarantee that.
In case a certain number of businesses won’t be willing to give the FinTech vendors the access to their bank accounts, then the ecosystem advancement is likely to be delayed.