Technological development requires banks to streamline their services and create a superior user experience for their customers. It is imperative that banks look to provide new digital services to prevent client churn to fintech companies and “new banks”. Banks can capitalise on their large client base when launching new innovative services and if they can provide good value-added services, their customers will not switch to other service providers.
PSD2 APIs allow standardised access to transactional data, which banks must provide to third parties. At the same time, it is a great opportunity for banks to use these same interfaces to develop competitive products, which help prevent payment churn. Banks may choose to compete on price, which, most probably they will be required to do in the spirit of PSD2. An Alternative strategy is to provide value-added services to clients – such as invoice related services – to make sure that payment transactions are more streamlined than previously.
Purchase to pay process
Banks should not forget that a payment – albeit very important and highly-regulated – is but one step in the purchase-to-pay process. Competition to cover the whole purchase-to-pay process is coming from several e-invoicing and purchase to-pay service providers, who are moving into financial services and are starting to provide payment and financing services. PSD2 will intensify that competition. Banks are at risk of being relegated to a supporting role when integrating with major e-invoicing solutions (Basware, Tradeshift, etc.) and bill presentation and payment solutions. Should these players become PSPs, they will be well positioned to take a slice of Banks’ payment margins.
However, banks too may enrich their internet bank experience with invoice presentation. This will ensure that if the invoice is stored at the bank then it will most likely be paid there given the convenience of payment transactions and the secure storage of invoices and bills. Banks providing payment services are perfectly positioned to provide invoice-related services as the integration of e-invoicing and financial services will drive more efficient financial intermediation in a number of ways:
i. Integrated payments based on invoice data can be automated and payment transactions executed at the bank, resulting in potentially less churn in payment revenues, which comprise approximately 40% of banking revenues.
ii. Additional financing opportunity for banks – an invoice is the best information source for data based, convenient payment and financing services. Invoice data has all necessary payment data; whoever has the invoice data, has access to payment deadlines. This provides additional financing opportunity for banks.
iii. Risk costs and churn will also decrease given access to business transaction data.
iv. Entering the banking customers’ life at the level of business transactions creates an excellent opportunity for greater customer loyalty.
Interoperable e-invoicing also provides an opportunity for banks to become the backbone of a European interoperable e-invoicing network, as we have illustrated in our previous article, and provide significant value for their SME and corporate clients:
i. The banking client will realise a significant efficiency increase from e-invoicing driven by interoperability (which means electronic processing of invoice data for all invoicing systems). Currently more than 90% of all invoices worldwide are still processed manually. Manual processing remains necessary given the diversity of invoicing systems and the lack of standardised data exchange (eg in the absence of interoperability).
ii. Standardised invoice data exchange is possible without additional IT development on the client side. Invoicing standards (EDIFACT, UBL) could provide a solution for interoperability but these standards are generally too complex to implement and, therefore, are typically not implemented in practice with the exception of the largest invoicing/ERP service providers. If banks form the backbone of an interoperable e-invoicing network, they can contribute to an efficiency increase for all economic players and strengthen their position as economic hubs.
Partner HUB’s Charlie-India platform offers a white label solution for electronic invoice presentation and payment for banks, payment service providers, and fintechs. Partner with Charlie-India and use your PSD2 API to launch white label online invoicing solutions in any country within weeks and implement into your operations effectively and at pace.
Written by Katalin Kauzli, co-founder of Charlie-India