Treasury is undoubtedly entering a phase of accelerated change. Recent Association of Corporate Treasurers (ACT) research shows that geopolitical risks, financial market volatility and a growing skills gap are all making the job of the treasurer tougher. At the same time, game-changing regulation in the shape of Open Banking promises to shake up not only the role of treasury, but businesses themselves.
Essentially, Open Banking established standardised interfaces (application programme interfaces or APIs) that allow bank customers to securely share their data with regulated third parties: other banks, technology platforms such as accounting, credit providers, and other trusted entities. In addition to sharing data, Open Banking enables customers to allow third parties to initiate payments on their behalf. The outcomes are practically unlimited.
Open Banking was kick-started in early 2018 by nine of the largest banks in the UK, followed by thousands of financial institutions under Payments Services Directive (PSD2) regulation across the UK and greater Europe in September 2019. While there has been quite a bit of noise about PSD2 Strong Customer Authentication (SCA) and subsequent delays in applying additional security to card payments, this has not impacted Open Banking timelines. In fact, PSD2 levels the playing field for corporates, given the ability to pay via direct bank transfer, an alternative to cards. With British retailers paying 50-400bps in card fees, we estimate a potential benefit of 50% through reduction in card scheme and issuer fees, effectively reducing retail cost of sales by 25bps.
Open Banking in the UK promises to equip the treasurer with the tools to make their function not only faster and more secure, but also far more strategic and focused on value creation. In general, it will speed up payments processes, promote real-time reconciliation, allow banks to develop better, more intuitive products and give treasurers the opportunity to view balance sheets in real time. It will also give customers far more power over their data, and demand that banks and other finance providers focus on delivering genuinely value-additive products, better service and transparent charges.
Similar corporate solutions will emerge, allowing multi-banked corporates a universal view of their cash. Outside of the UK, different jurisdictions are opening up new API-driven approaches to banking services – creating new and interesting potential for how we can manage global liquidity in real time, as well as easier and quicker ways for customers to connect direct to their banking data.
In turn, this will change the metrics by which treasurers are judged, and some in the profession need to catch up. “Treasurers are now increasingly measured by the value they bring to the business, which reflects a move away from the doing to the thinking,” ACT speaker’s chair Peter Matza explained at the ACT Annual Conference in May.
The UK has taken an early lead compared to the rest of Europe, and countries around the globe are now focused on Open Banking, including the US, Australia, Hong Kong and Singapore. All markets expect to see many new entrants in this exciting space. Those nine UK banks are carving out an early lead; at NatWest, we have been developing disruptive technologies since the government first mooted Open Banking, by building in-house development teams and partnering with the next generation of technology providers.
I’d urge that treasurers are proactive and start talking to their banks now about how open banking can help them. The above are some obvious examples of how together we can take advantage of it, but there are others. Just remember that if you think you could have a more meaningful conversation with a different bank, Open Banking makes it easier to engage with alternative providers.
Callum Nash is MD, head of large corporate coverage at NatWest