Opening up banking in the corporate world

Open bank­ing has shak­en up the retail bank­ing sec­tor. Ever since the ini­tia­tive came into force in 2018, fin­tech firms have been able to make direct con­nec­tions with con­sumer accounts and use bank­ing data to pow­er a new wave of slick, high­ly tai­lored finan­cial prod­ucts. But what about cor­po­rate cus­tomers? How do they stand to ben­e­fit from the inno­va­tion and com­pe­ti­tion that stems from open bank­ing?

“Much has been made of the oppor­tu­ni­ty open bank­ing cre­ates for retail cus­tomers,” says Michael Bridg­man, group prod­uct man­ag­er at GoCard­less, which helps busi­ness­es col­lect recur­ring pay­ments from cus­tomers. “In fact, cor­po­rates are like­ly to enjoy at least as many ben­e­fits. In some sense, the impact will be sim­i­lar to con­sumers: speed and ease of receiv­ing cred­it will be improved, expense man­age­ment and clas­si­fi­ca­tion will be faster and more auto­mat­ed, and instant and con­sis­tent vis­i­bil­i­ty on cash posi­tions glob­al­ly.”

Open bank­ing in both the retail and cor­po­rate sec­tor is under­pinned by appli­ca­tion pro­gram­ming inter­faces (APIs) that allow dif­fer­ent organ­i­sa­tions’ com­put­ers to exchange infor­ma­tion. These APIs expose a range of data to third-par­ty finan­cial ser­vice solu­tion providers, enabling them to build prod­ucts and ser­vices that are high­ly tai­lored to spe­cif­ic needs. In addi­tion, they also allow cus­tomers to autho­rise pay­ments direct­ly with a third par­ty, rather than hav­ing to engage direct­ly with their bank account.

In essence, this means “cor­po­rate cus­tomers can access best-of-breed solu­tions and inte­grate them into their oper­a­tions effec­tive­ly and effi­cient­ly”, says Mike Hamp­son, chief exec­u­tive of Bish­ops­gate Finan­cial, a UK-based con­sul­tan­cy spe­cial­is­ing in change man­age­ment with­in the finan­cial sec­tor. “Tighter inte­gra­tion means more effi­cient pay­ment process­es and bet­ter man­age­ment of work­ing cap­i­tal.”

Connecting seamlessly

Addi­tion­al­ly, open bank­ing could help cor­po­rates to con­nect seam­less­ly with their end-cus­tomers. Simon Lyons, head of ecosys­tem engage­ment at the Open Bank­ing Imple­men­ta­tion Enti­ty, offers an exam­ple of how this might work in prac­tice. “Typ­i­cal­ly, there has always been a bar­ri­er between some high-vol­ume cor­po­rates – such as util­i­ties, gov­ern­ment, cred­it cards, insur­ance and wealth man­agers – and their cus­tomers when it comes to col­lect­ing pay­ments out­side the tra­di­tion­al meth­ods [like] direct deb­it,” he says.

“Open-bank­ing tech­nol­o­gy can remove this bar­ri­er entire­ly, and enable cor­po­rate cus­tomers to pre­pare a pay­ment for a client in advance, which makes lat­er rec­on­cil­i­a­tion much eas­i­er and sim­pler.”

In oth­er words, open bank­ing sup­ports a shift from the pull-based autho­ri­sa­tion mod­el of direct deb­it to a push-based one ini­ti­at­ed by the con­sumer upon receiv­ing a request for pay­ment. This allows organ­i­sa­tions to col­lect large, vari­able pay­ments with less risk of fail­ure due to insuf­fi­cient funds in the customer’s account.

 Some finan­cial ser­vices firms are already pro­vid­ing addi­tion­al val­ue-added ser­vices on the back of access to open bank­ing data. “For instance, Mas­ter­card is part­ner­ing with a fin­tech, Card­lay, to unlock cor­po­rate card data to pro­vide auto­mat­ed expense man­age­ment and VAT claim process­es to their com­mer­cial clients,” says Kani­ka Hope, glob­al strate­gic busi­ness devel­op­ment direc­tor at Temenos, a lead­ing provider of enter­prise soft­ware for finan­cial insti­tu­tions.

The ben­e­fits of tighter inte­gra­tion between bank and cor­po­rate cus­tomer sys­tems are par­tic­u­lar­ly notable when it comes to enter­prise resource plan­ning (ERP). “Open bank­ing enables real-time inte­gra­tion between the corporate’s ERP and trea­sury sys­tems and the bank, great­ly enhanc­ing vis­i­bil­i­ty for both the bank and the cor­po­rate trea­sury,” says Hope. 

“Banks can use it to access accounts payable and receiv­able data in real time from their cor­po­rate clients allow­ing them to make bet­ter-informed cred­it deci­sions and accord­ing­ly tai­lor their propo­si­tions to the corporate’s spe­cif­ic busi­ness con­text, proac­tive­ly offer­ing appro­pri­ate hedg­ing and oth­er work­ing cap­i­tal prod­ucts.”

Faster loans, less fraud

In the case of loans, open bank­ing will reduce appli­ca­tion and approval times, while also reduc­ing fraud risk, says Paul Thoma­l­la, glob­al head of pay­ments at Finas­tra. “With the right data secu­ri­ty in place as man­dat­ed by PSD2 [EU Pay­ment Ser­vices Direc­tive], busi­ness­es apply­ing for finance can see their appli­ca­tion time reduced from days to hours, as they will no longer need to source paper bank state­ments.”

Fur­ther­more, cor­po­rates that inte­grate their ERP sys­tem with the bank can also use work­flows and alerts to con­trol access and user actions, and remove the risks of fraud and error asso­ci­at­ed with man­u­al extrac­tion of files from an ERP, adds Thoma­l­la. 

Open bank­ing also allows trea­sur­ers to view all a company’s accounts from one dash­board, giv­ing them a real-time view of cash flow and liq­uid­i­ty across the busi­ness. “Mul­ti­ple bank accounts could be nor­malised and aggre­gat­ed, giv­ing indi­vid­u­als an up-to-date view of mul­ti­ple bank accounts in mul­ti­ple cur­ren­cies [where open bank­ing is sup­port­ed] and allow­ing them to trans­fer funds between accounts while main­tain­ing a com­plete view of their dai­ly finances,” says Bridg­man.

Open bank­ing encour­ages greater col­lab­o­ra­tion between finan­cial insti­tu­tions and fin­techs, which enables the whole indus­try to be more inno­v­a­tive

The abil­i­ty to ini­ti­ate pay­ments secure­ly from with­in the ERP sys­tem is anoth­er major ben­e­fit for cor­po­rates. “Com­bin­ing the abil­i­ty to make pay­ments with ERP sup­pli­er man­age­ment func­tion­al­i­ty will pro­vide a sin­gle source of truth for every­thing from sup­pli­er pro­cure­ment to pay­ment ful­fil­ment,” Bridg­man explains. 

In terms of accounts receiv­able, API inte­gra­tions between banks and ERPs will give cor­po­rates the abil­i­ty to track all pay­ments accu­rate­ly into the busi­ness in real time, doing away with the need for end-of-day state­ments, a fur­ther big win when it comes to stream­lin­ing finan­cial process­es.

Ulti­mate­ly, open bank­ing encour­ages greater col­lab­o­ra­tion between finan­cial insti­tu­tions and fin­techs, which enables the whole indus­try to be more inno­v­a­tive, says Thoma­l­la. And it’s some­thing that now stands to ben­e­fit cor­po­rate cus­tomers just as much as retail con­sumers.

To find out more, read Resilience in Finan­cial Ser­vices

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