PSD2: Real-time processing? Not so fast
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Industry experts observe that while the revised Payment Services Directive (PSD2) represents an opportunity for corporate treasury to take advantage of real-time payment processing, it will take some time for the full benefits to be realised.
The 2018 UK business payments barometer report published by Bottomline Technologies notes that financial decision-makers recognise the change that PSD2 can bring to payments within their businesses.
Few observers expect large numbers of corporates to become payment-initiation service providers, offering their own service to their customer bases in an attempt to bypass payment service fees.
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Bob Stark, Kyriba |
However, some of those operating efficient shared services and payment factories may be interested in extending their reach into payment initiation, according to Bob Stark, vice-president of strategy at Kyriba.
“The registration and regulatory compliance requirements in each country the corporate would wish to offer payment services in may be enough to dissuade many from investigating further,” he says.
“Additional research will uncover the degree of specialization needed to be more efficient and cost effective than outsourced third-party providers.”
Ed Adshead-Grant, Bottomline Technologies’ general manager for payments and cash management, says one of his corporate clients that had acquired a regulatory licence to conduct payments on behalf of customers is now in an “accelerated process” to off-load it due to the risks involved in a non-core activity.
Instead, PSD2 will prompt corporates to hold discussions with existing payment service providers and newly created payment-initiation service providers in search of better deals, suggests Lu Zurawski, practice lead for retail banking at ACI Worldwide.
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| Lu Zurawski, ACI Worldwide |
“If a corporation knows that its bank can now make liquidity gains from real-time payments, it is more likely to ask for a share of these benefits from its supplier rather than immediately trying to create its own payments operation,” he says.
“Corporates are unlikely to want to take a leading role in educating consumers about new ways to pay.”
The real value lies in the transition to APIs heralding a move away from batch processing to real-time updates, suggests Kyriba’s Stark.
“In many parts of the world, reporting is limited to prior-day and a handful of intra-day reports,” he observes. “API technology enables a real-time flow of bank information to corporates.
“We expect banks to replace batch protocols such as FTP [file transfer protocol] with APIs, and the transition to real-time reporting for treasury management and enterprise resource planning systems will soon follow.”
Bottomline Technologies’ Adshead-Grant refers to APIs as additional fuel to the global trend towards instant, visible, real-time operations where buyer and supplier value chains become more demanding and competitive to trade across borders.
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| Ed Adshead-Grant, Bottomline Technologies |
“The market demand and technology is there to have richer, better-furnished profiles on cash positions, transactions and any associated information,” he says.
Corporates that have updated their infrastructure to handle these data demands and pushed their mainframes to do more in real time – including access to billing data, customer information, cash flow and financial data, as well as credit data – and to enable ecommerce and other web applications, will expect the same from their banks, according to Finastra corporate banking strategist Ben Singh-Jarrold.
“Value-added use cases will focus on where a service provider (bank or non-bank) can provide more immediate and relevant services,” he says.
“For example, with real-time data exposed, banks can partner with merchants and shippers and through APIs offer credit lines or working capital finance to corporate buyers online at the point of procurement, or at different trigger points along the supply chain.”
'No Big Bang'
The move away from batch processing to real time will not happen with a “Big Bang” though, cautions Domenico Scaffidi, ACI Worldwide’s principal solution consultant for immediate payments.
“We need to remember that most banks have a legacy infrastructure in place that is in some cases 30 or even 40 years old, so to move to a real-time payments environment will take at least three to five years in most cases,” he says.
Arn Knol, a director in the corporates team of treasury consultancy Zanders, agrees that the process will take time, noting that while there are considerable benefits to be achieved on the receivables side, the most notable limitation regarding real-time updates is that the underlying systems that holds these transactions would need to support this.
“So far, we have not seen the major accounting systems moving towards real-time processing,” he continues. “As such, we expect that processes like intra-day clearing of accounts receivable transactions will remain mostly a manual process for now.
“We also do not expect the large enterprise resource planning systems to move quickly towards supporting real-time transaction processing, given the local nature of PSD2.”
The harmonization of real-time services will be the next big challenge to address liquidity issues and make cross-border payments more efficient, adds ACI’s Scaffidi.
“In order to address these issues, the ECB will launch its Target2 instant payments service in November,” he says. “By joining this service, financial institutions will be able to open a dedicated settlement account for every pan-EU instant payment service, linking all accounts opened to their Target2 accounts.
“This will keep liquidity in one place, avoiding fragmentation and lowering risk.”