PSD2 and Open Banking: All you need to Know
This article is written by Trustpair Flexible payment options, such as credit cards and buy now, pay later have been proven to help businesses improve their conversion rates by as much as 27%. With open banking APIs and PSD2 regulations, businesses can offer more payment options to their customers (and vendors), helping to scale their growth. But that’s not all open banking is good for. In this piece, you’ll learn about the advantages (and risks) associated with open banking’s biggest regulation – PSD2. PSD2 and open banking: definition and context PSD2 stands for the second iteration of the Payment Services Directive. It’s a European regulatory guideline tasked with connecting the data from banks to third party providers (fintechs). The aim of the regulation is to decrease the barrier of entry for new companies to access the financial services market, and ultimately increase the quality and range of finance services for customers. PSD2 came into force in 2018, after its first version was introduced back in 2007. The initial regulation was introduced to promote a single market for payments in the EU. But this second version was necessary because of the rise in open banking – consumers’ expectations have evolved as banking accounts and services moved online. As such, PSD2’s core concepts, including AIS and PIS were created to meet these expectations and maintain the integrity of the payments market. And although it’s mandated in the European market, there’s still a lot that US businesses can provide within the confines of PSD2. AIS: Account information service Account Information Services (AIS) enable registered service providers to consolidate and report a user’s data from multiple sources into one dashboard. A budgeting app like Emma or PocketSmith, which both connect multiple bank accounts to automatically analyze transactions, is a good example of this. In order to be authorized to access and consolidate this information, third party providers must be registered with their National Competent Authority (which also manages PSD2 compliance). By being approved on this list, AIS’ need to have completed their due diligence and demonstrate that they can adhere to the security standards of the payments regulation. PIS: Payment initiation service Payment Initiation Services (PIS) work a bit differently. It enables users to pay for products or services from inside a business app, instead of having to set it up through their bank. This brings the benefits of digital convenience, since the likes of direct debits or bank-to-bank payments are incredibly manual and time-consuming. In-app payments could vary from gaming purchases to online subscription payments for business products. But what remains the same, every time, is that users benefit from seamless and secure real-time transactions at a low cost. And, they get full control over their purchases thanks to automatic push payment (APP) notifications. These notifications pop up on the phones of payees as before their money leaves their account, as an extra authorization step. Having said that, authorized push payment fraud is emerging as a threat. With cellphone users getting constantly pinged by notifications, it’s easy for users to get confused and authorize withdrawals. This type of mobile payment fraud happened to customers of TalkTalk (a telecoms business), when fraudsters called up the customers and told them to accept the APP for a refund. Instead of funds being deposited into their account, it were withdrawn. Open banking and APIs: how does it work? Although Payment Services Directive 2 does not mandate any particular methods or tools (since it’s a directive), APIs are the clear option for implementing open banking services. API stands for application programming interface. They are like keys – when developers have a platform that they want to link with a bank, they will use the bank’s API to unlock data sources from the bank. Of course, each API works with the highest level of security, ensuring that open banking can be scaled at a low cost. Here are some examples of the services that work through open banking APIs: Open Banking: what are the key advantages? When it comes to the advantages of open banking, we’ll focus on three of the most impactful: PSD2 standards for security The introduction of multi-factor authentication came in with PSD2. This elevates payment security standards with greater internal controls, as it required at least two of the following three verification measures to take place before a transaction could leave the payee’s account: Also known as 2FA, this implementation is an incredibly popular one for businesses – both used to authenticate their customers and administrators. In fact, 64% of companies use MFA to verify customer identities, and 90% to validate their staff users as of Jan 2023. More competition leads to better customer experiences Long gone are the days where we all choose a bank as a teenager, and stick with it. In fact, more consumers in the US are reporting their interest in switching banks today, than compared to any point within the last decade. Open banking is one of the driving forces behind this change, since it’s enabled so much innovation. Now, financial institutions can partner with third parties to offer: With open banking accessible across the board, it’s up to the banks and financial institutions to build better customer experiences. Think improved UX design, gamification, and more account features, like savings calculators or investment predictions. Fueling the competition, this ultimately results in good news for the customer; more convenience, better app navigation and access to innovative products and services. Improved financial wellbeing The data that open banking provides can help individual customers and businesses alike. For example, data-driven businesses are 23 times more likely to acquire their customers, and six times more likely to retain them, than institutions that do not use data in their strategies. By implementing APIs to report on customer interactions, transactions and behavior, users can better understand how customers make purchasing decisions. This leads to higher conversion rates, since businesses can make the right offers at the right time. For example, banks could send the following offer: “we can see that you’ve been earning above the tax threshold. Would you like to automatically transfer a % of all…
FranklinNavigating the Future: Harnessing Artificial Intelligence in Treasury for Efficient Cash Forecasting and Fraud Detection
In the dynamic landscape of corporate finance, treasurers and finance professionals are increasingly turning to artificial intelligence (AI). In order to enhance their capabilities in cash forecasting and fraud detection. While AI presents unprecedented opportunities, it is essential to recognize its role as a facilitator rather than a replacement for human expertise. This article goes into the strategic use of AI in Treasury functions. It specifically focuses on cash forecasting and fraud detection. While emphasizing the importance of a comprehensive data strategy and the key role of human oversight. 1. The Foundation: Building a Robust Data Strategy Before diving into the realm of AI, treasurers must establish a strong foundation through a well-thought-out data strategy. This involves seamlessly mapping data points from various internal systems to create a unified and comprehensive dataset. The availability of high-quality, reliable data is crucial for the success of AI applications in treasury. 2. Cash Forecasting: Unleashing the Power of “Artificial Imagination” Cash forecasting has traditionally relied on historical transactions and predictive analytics. AI brings a paradigm shift, introducing the concept of “Artificial Imagination”. Unlike mere automation, this term emphasizes the creative and decision-making capabilities of AI. Machine learning algorithms analyse historical data to identify patterns, enabling treasurers to make more accurate predictions about future cash flows. While AI significantly improves forecasting accuracy, it is essential to underscore that it should be viewed as a tool to assist and increase human decision-making rather than a standalone solution. Treasurers should remain vigilant and continue to implement upfront controls, including rigorous validation processes. 3. Fraud Detection: Strengthening Defenses with AI The battle against fraud requires constant vigilance, and AI emerges as a powerful ally in this endeavour. Machine learning algorithms can analyse vast datasets in real-time, identifying anomalies and patterns indicative of fraudulent activities. However, it is crucial to recognize that AI complements existing fraud detection measures and should not replace fundamental controls. Treasurers must continue to implement robust internal training programs to keep their teams abreast of the latest fraud tactics and ensure that AI systems are aligned with the organization’s risk tolerance. Moreover, AI can empower finance professionals to focus their attention on strategic aspects of fraud prevention, such as developing proactive strategies and refining controls. 4. A Strategic Approach: Walking Before Running While the value-add of AI is undeniable, treasurers are advised to adopt a strategic approach, ensuring that foundational processes and workflows are fine-tuned before integrating new technologies. This involves critical self-assessment, aligning with organizational goals, and fostering a culture of continuous improvement. People remain at the heart of this transformation. AI is not a replacement for treasurers but a catalyst for shifting their focus to more value-added, strategic tasks. By automating routine and time-consuming activities, AI allows finance professionals to elevate their roles as business partners, contributing meaningfully to the organization’s success. In conclusion, the integration of AI into Treasury functions is a journey that requires careful consideration and strategic planning. Embracing artificial intelligence (or, as you know now, artificial imagination!) in cash forecasting and fraud detection empowers finance professionals to be more efficient, proactive, and strategic in their roles. However, success hinges on recognizing AI as an augmentation tool and preserving the invaluable human touch in financial decision-making. ALSO READ
Benjamin DefaysBalancing Innovation with Fundamentals for Lasting Value
In the always-changing world of finance and treasury management, the landscape is constantly changing with new technologies and trends. As a treasurer, you’re inundated with terminology and buzzwords. Yet you may find yourself unsure of how to effectively leverage these tools to drive value for your organization. If you’ve ever felt this way, rest assured, you’re not alone. Are you an experienced treasurer or someone looking to enhance their knowledge of financial management? We extend a warm welcome to TreasuryMastermind.com. Join our vibrant community and become a valued member of a network that prioritizes collaboration, expertise, and the pursuit of excellence in corporate treasury. Let’s initiate discussions and together elevate the art and science of treasury management! “Building a solid foundation is key” It’s essential to acknowledge that building a solid foundation is key before diving headfirst into the latest innovations. AI, automation, and other advancements hold tremendous potential. But they are most effective when built upon a bedrock of fundamental principles. Far too often, treasurers become fixated on adopting the latest technologies without first understanding their business thoroughly. This includes careful documentation operations, identifying inefficiencies, and implementing strategies for improvement. Creative destruction, the process of eliminating outdated practices to make room for innovation, is a powerful tool in this regard. Consider the many reports that consume valuable time and resources without clear utility—a prime target for streamlining efforts. I will always remember a great (and rather simple) piece of advice from a former boss. To whom I asked whether this and this report were really needed. “Stop doing it and see what happens. If nobody comes at you, it means nobody cares.” I followed his advice, which saved me two days of work every week for my team. Of course, I wouldn’t apply it without thinking if I were you. Ask around you before stopping a reporting activity. “Without a solid framework in place, even the most advanced tools may yield limited results” Prioritizing initiatives such as business continuity planning (BCP), staff education and training, and making clear roles and responsibilities within the Treasury function are essential precursors to technological integration. Without a solid framework in place, even the most advanced tools may yield limited results. Once these basic elements are in place, treasurers can begin to optimize their existing processes using a combination of technology and strategic planning. Implementing workflow tools to manage end-user requests, developing key performance indicators (KPIs), and establishing your own BIC for better banking relationships are all steps in the right direction. “Treasurers can unlock significant efficiencies and cost savings” A treasury management system (TMS) serves as the linchpin for many of these optimization efforts, providing greater visibility into cash positions, improving payment management, and facilitating intercompany transactions. Also, by centralizing cash management and leveraging in-house banking capabilities, treasurers can unlock significant efficiencies and cost savings. In the realm of foreign exchange (FX) management, transitioning from direct bank trading to an FX platform offers enhanced pricing, transparency, and security. These platforms seamlessly integrate with TMS systems, further streamlining FX transactions through automation and advanced reporting capabilities. “Treasurers can unlock valuable insights” As treasurers continue to modernize their operations, artificial intelligence (AI) and application programming interfaces (APIs) emerge as powerful tools for enhancing cash forecasting and integration with internal systems. Leveraging machine learning algorithms, treasurers can unlock valuable insights into cash flow patterns and optimize liquidity management strategies. API integration extends the capabilities of TMS systems, enabling seamless communication with other critical systems such as data hubs and ERP platforms. By aligning treasury functions with broader data strategies and automating accounting entries, treasurers can drive operational efficiency and ensure compliance with financial reporting standards. In essence, the journey toward financial transformation requires a strategic approach that balances innovation with basic principles. By prioritizing operational excellence, leveraging technology strategically, and embracing continuous improvement, treasury professionals can navigate the evolving landscape with confidence and drive lasting value for their organizations. To conclude, walk before you can run! Also Read
A Day in the Life of a Treasury Robot
This article is originally posted by our Partner Automation Boutique A concept that’s both fascinating and futuristic is the treasury robot. Let’s take a look into what a day could look like for one of our treasury robots: 6:00 AM – Bank Data Gathering with APIs and RPA 🦠My day doesn’t begin with coffee but with data collection. I use APIs whenever possible for a smooth retrieval of bank account balances and transactions from various banks. For banks that do not offer APIs, I gather the MT940 statements. For those without MT940 capabilities, I deploy my Robotic Process Automation (RPA) skills to log in to the banking portal and scrape the required data. After all data is collected, I ensure it is imported into the Treasury Management System and initiate the reconciliation process. When my human colleague arrives later, she only needs to review my work and manage any exceptions. 7:00 AM – Updating FX Rates with API Integration 💱 I then update the Foreign Exchange (FX) rates in our Treasury Management System. This is automated through the integration of an API from the ECB (European Central Bank), which allows for regular updates and ensures our financial operations use the correct FX rates. Before updating the system, I perform some checks to make sure that the rates I gathered are correct and complete. For any rates for which I have doubts, I notify my human colleagues with a message on Teams. 8:00 PM – Updating the Cash Flow Forecast Next, I focus on updating our cash flow forecast. By synchronizing data from our bank accounts, ERP, CRM, and historical trends, I create a draft of our updated cash flow forecast. My human colleague will later make manual adjustments based on her judgment before the forecast is used in decision-making. If she wants, I can help her spot patterns I can find in the data, such as seasonality in the cash flows or find those clients who always pay late at the end of the year. 10:00 AM – Crafting the Weekly Report 📊 Mid-morning, I start creating the weekly report on cash movements and liquidity positions within the group. Using Power Query, I transform raw data into insightful information, which is then automatically visualized in both Excel and Power BI. After a thorough review and approval by a human colleague, I email this crucial report to management. 1:00 PM – Counterparty Risk Management and Anti-Fraud Checks using APIs 🔠In the early afternoon, I focus on risk management and fraud prevention activities. I conduct counterparty risk analysis by interfacing with credit scoring companies through APIs. Simultaneously, I validate supplier bank account details, a critical step for maintaining our financial security and integrity. 2:00 PM – FX Risk Management 💱 After completing the anti-fraud checks, I turn my attention to FX risk management. I calculate currency exposures by analyzing upcoming payables and receivables in various currencies. Then, I determine the necessary trades and ensure they align with our company’s risk strategies and policies. Afterward, I input these trades onto the dealing platform. They are not executed immediately; instead, I notify my human colleague to review and approve them. 5:00 PM – Optimizing Overnight Deposits for Yield Maximization 🌙💰 As the business day winds down, I suggest the best strategy regarding automatic overnight deposits. This task involves analyzing various investment opportunities to ensure the best possible yield on our company’s cash reserves. Maybe one day my colleagues will let me also execute the transactions, it would be easy for me! So, that’s a snapshot of a day in my life, the life of a treasury robot. But here’s an important thing you should know about treasury robots. The treasury robot, as described, doesn’t actually exist as a single entity. In reality, what we’re talking about are various software robots, each specialized in different processes and automation technologies (like RPA, AI, APIs and Power Query). When these are combined, they create what can be metaphorically referred to as “the treasury robot.” This means it can be fully customized to fit the unique workflow and needs of any company, making the concept both versatile and adaptable. With the technologies we have at our disposal today, we can create this kind of “treasury robots”. Imagine the potential! How would you design your company’s ultimate treasury robot? Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Patrick Kunz