The Second Payment Services Directive (PSD2) is set to revolutionise banking in 2018, with banks required to make structural and strategic changes to the way in which they operate within the payment sphere.
By 13 January 2018, jurisdictions in the European Union and European Economic Area will be required to transpose PSD2 into domestic legislation, resulting in increased competition and improved customer protection in the banking sector.
But, what are the implications of an open payments environment, and what are the challenges for finance directors amidst the opportunities for B2B payments innovation?
PSD2 entered into force in January 2016 and establishes a common framework for payments within the EU. Establishing rules to govern existing and new payments services, the directive aims to improve the security of transactions and data, increase competition within the payments space – leading to greater choice for consumers – and enhance consumer rights.
Under PSD2, banks must allow third party providers access to customer online accounts, enabling the development of new technology to improve the customer payment experience.
While digital disruption transforms the business and wider world, a recent survey by Ixaris has demonstrated that finance directors remain focused on reducing costs, mitigating risk and improving competitiveness – priorities that are particularly important given the current global political and economic uncertainty.
While many FDs welcome technological advancements, finance directors are more likely to adopt new technology if they believe it will support them in the fulfilment of their main business priorities. This is true for payments innovation. As the head of commercial cards at ING commented as part of the survey: “If payment systems providers want to be successful, they are going to have to work with senior treasury executives at target clients to show how their solutions will solve problems.”
However, CFOs have yet to fully immerse themselves in the open payments world. With many CFOs operating outdated systems that present barriers to improved efficiency, concerns about high adoption costs and implementation complexities are key issues in preventing FDs from taking steps towards payment automation. Fears over customer data and compliance are also significant, with FDs eager to ensure that they have robust security processes in place and needing assurance that automation adequately protects data in line with expected standards.
In the survey conducted by Ixaris, 86% of CFO respondents said that they used direct debits, with 78% using credit transfers. Only 21% of companies of all sizes were using virtual cards and virtual accounts. The size of the company had little significance here with 23% of companies with turnover above $10m and 20% of businesses with turnover under $10m using virtual cards.
With PSD2 comes greater opportunities for CFOs to leverage payment innovation to improve business efficiency and drive growth.
Two of the top reasons behind CFO adoption of innovative payment technology are business process automation and efficiency, with reduction in costs also cited as a key incentive. This implies that finance directors value convenience when considering new payment products or services, with ease-of-use a key consideration for finance leaders. New technology targeted towards the right company can deliver these desired outcomes.
More and more, finance directors are willing to engage in the testing of new technology and experiment with innovation. And this is driven by a shift in attitude regarding the role of the finance function in general. Increasingly, FD are advocating collaboration with other departments and embracing automation that replaces manual tasks. This is evidenced by 66% of all companies highlighting payment integration with the banking and accounting system as one of the top three considerations when choosing a payment solution. In addition, 54% opted for payment automation to reduce manual controls as one of their top three priorities.
Forward-thinking CFOs are well placed to capitalise on payment innovation, with streamlined processes and cost reductions just two of the benefits for the finance function and wider business.
Providers have a unique opportunity to resolve FD challenges through payment automation so long as they have a clear understanding of their target market and present effective solutions to resolve current business inefficiencies.
One initiative to support providers in this task is the Open Payments Cloud (OPC), launched in beta in June this year. Offering a platform for collaboration, the OPC aims to simplify the creation of payments solutions by bringing together diverse third-party payments capabilities including virtual cards as well as access to bank accounts that will be made available once PSD2 is implemented. The OPC will encourage and support innovation within payment automation – benefiting businesses of all sizes.
With programmes like these at the forefront of innovation, and with PSD2 set to make a big impact in 2018, the payment industry looks set to radically alter the way businesses view and address commercial payments in the future.
To find out how payment automation can benefit your business, register for the Open Payments Track Test. Taking place on 27 September, the event provides an opportunity to gain practical, hands-on experience of the open payments space along with the business community.