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Corporates On Deck For Open Banking Disruption

It’s now been a year since Open Banking officially came into the U.K. financial services market, but the regulatory initiative seems more of a natural progression for the sector rather than a sudden disruption. FinTech adoption is surging among consumers, particularly in areas like money transfers and payments, EY data show. The traction gained from FinTech players demonstrates the willingness consumers have to connect their bank accounts to third-party apps and enable the data sharing that Open Banking promotes.

How this new landscape of financial services will play out for corporate customers of the banks, however, is less clear, but disruption is on the way.

A new report from treasury technology firm Centtrip predicts that businesses in the U.K. will “reap the rewards” of the API ecosystem developing within Open Banking as early as next year. But a lot has to happen for that forecast to come to fruition, especially considering 59 percent of companies surveyed by Centtrip say they haven’t yet benefitted from the legislation — and 8 percent are still entirely unaware of what Open Banking even is.

Still, most businesses are bracing for some changes, with nearly two-thirds of medium-sized and large enterprises expecting Open Banking to save them time and make their financial management professionals’ lives easier. For the companies that say they have seen an impact from Open Banking, payments and expense management landed at the top of the areas of corporate finance most positively affected so far.

This is all, presumably, good news for corporate customers of banks looking to embrace FinTech. Open Banking aims to not only promote competition in the financial services market by enabling third-party FinTechs to access banking data they need to provide key services, but also intends to enable users of those FinTechs to more seamlessly access their own financial data.

In the corporate world, these achievements can be even more valuable than they are for the average consumer, thanks to the multitude of banks, financial platforms and levels of security that corporates have in place today. But according to Centtrip CEO Brian Jamieson, the differentiator between corporates and consumers is also what makes the corporate banking landscape such a complex and challenging one for Open Banking to positively impact.

Open Banking “was always going to be a bigger challenge in how it was going to be introduced to a corporate market, where obviously banking and transactional requirements are much more complex” Jaimeson told PYMNTS in a recent interview. “Not just in terms of having more than one bank, but in terms of how you use those banks.”

Corporates’ multi-factor authentication requirements are one example of the challenges of corporate banking in an Open Banking world. Various departments and executives may be authorized for different kinds of transactions — for instance, one executive may be cleared to initiate a transaction of $5,000 and below, but another must approve of any payment of a greater value.

It’s in this way that Open Banking, though on the cusp of proving beneficial to corporates, remains a difficult nut to crack for the banks themselves.

“The various processes and protocols differ from bank to bank in how they work,” continued Jamieson, highlighting the various ways that banks ensure data security depending on the unique needs of each corporate customer. “It adds layers of complexity in how Open Banking works in a day-to-day, operational perspective.”

Open Banking is likely to promote clarity and transparency in services to corporate customers, he said, including in fee structures (though, he noted, lower costs of services won’t be the driving factor of Open Banking’s positive impact on corporate financial services). It’s also going to place heightened pressure on financial institutions, both traditional and not, in how they manage data for businesses considering the existing complexities of how data access is authorized in a corporate environment today.

So far, there is not a single, universal solution that financial institutions can deploy to manage data movement and security for corporates, said Jamieson. Rather, each bank must make its own decisions based on the unique needs of a customer, their jurisdiction, and other factors to ensure that access to data is granted only to those with approval to have it.

While data security is a focal point of Open Banking and GDPR regulations, Jamieson added that it is not likely to be the key differentiator for corporate end-users of financial services. Rather, the key will be to figure out how to seamlessly move and share data for businesses with many banking relationships across many parts of the world while still adhering to each company’s individual data security needs.

Already, businesses surveyed by Centtrip have an idea of how they want Open Banking to improve their financial services: managing money in accounts, sending and receiving payments, reviewing expenditures and foreign currency exchanges were all among the top use cases cited by businesses preparing for Open Banking disruption.

Businesses may know what they want, but for now, the banks might be unsure of how to deliver it.

“There are still obstacles to overcome,” Jamieson said. “From the consumer side, it will be a much easier transition. From a corporate side, I think there is a lot to be seen and yet to be proved. It won’t be as easy as people think.”

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Latest Insights: 

The Payments 2022 Study: Building A High-Performance Payments Team For Fraud Detection, a PYMNTS collaboration with Stripe, examines how digital platforms of all sectors and sizes plan to develop their anti-fraud teams as part of their their broader growth and development strategies. Drawing from an extensive survey from approximately 250 payments heads at digital platforms in the U.S. and abroad, our study analyzes how poor anti-fraud capabilities can harm platforms’ long-term growth strategies, and how they can build high-performing teams to tackle these challenges.

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