The case of e-invoicing: Opportunity and reward
Technological development requires banks to streamline their services and create a superior user experience for their customers. It is imperative that banks look into providing new digital services to prevent client churn for fintech companies and “new banks”. Banks can capitalize 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 standardized access to transactional data, which banks must provide from now on to third parties. At the same time, it is a great opportunity for banks to use these same interfaces to develop competitive products, helping them preventing payment churn.
Banks, within the scope of PSD2, will be compelled to compete on price. 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.
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 providing 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.), 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 could enrich their online customer experience with invoice presentation. This will ensure that if the invoice is stored in-house, 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:
- 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 make up approximately 40% of banking revenues.
- 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.
- Risk costs and churn will also decrease given access to business transaction data.
- 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 (https://www.fintechtalents.com/launching-a-european-e-invoicing-network), and provides significant value for their SME and corporate clients:
- The banking client will benefit from 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 standardized data exchange (e.g. in the absence of interoperability).
- Standardized 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.
PSD2 gives an opportunity to revisit the approach to product development process and rely on your PSD2 API as if banks were a third party provider. It will surely give birth to new ideas and approaches, which will benefit both banking organizations and customers.
By Katalin Kauzli, co-founder of Charlie-India