Open Finance to improve supply chain financial cash flow management

Every year, approximately 18 billion invoices are issued in the European Union, i.e. an average of more than 500 invoices per second.¹ In addition, the European Commission has found that 25% of business failures are attributed to the late payment of invoices² and that, on average, 50% of business transactions are paid late or remain unpaid.³

These data highlight the need, especially in B2B and B2B2X areas, for new Open Finance solutions to simplify and improve payments and collections in the supply chain. The European Union has introduced the PSD2 directive, and its upgraded proposal to PSD3 in 2023, with the aim of promoting online payments and facilitating access to financial information through Open Banking platforms.

Open Finance represents the new frontier in the field of financial and banking services. Thanks to its open and interoperable nature, it allows companies to easily integrate financial solutions into their systems to enrich their offering and simplify payments throughout the supply chain.

Instant payments: PISPs revolutionise cash flow management

With the new European regulations, TPPs (Third-Party Providers) have emerged, new authorized entities that provide financial services through access to customer data and accounts. These include PISPs (Payment Initiation Service Providers), which have improved bank transfers by adopting some of the strenghts of other payment instruments, such as payment cards or digital wallets.

If we compare standard bank transfers with other payment solutions, such as digital wallets, there are at least two elements which emerge that can make collections potentially more complex:

1. Compilation error
   The standard bank transfer, i.e. entered manually via internet or remote banking, requires the manual data entry (such as IBAN, recipient’s name, payment reference, etc.). This process is time-consuming and generates an operational risk linked to the incorrect entry of one or more information.
2. Reconciliation between order and collection
   It is possible for a bank transfer to be made without one or more elements necessary to reconcile the purchase order and payment. Order code, invoice number, customer code are some basic information for reconciliation operations, which become more complicated if they are not provided by the customer.

The strategic role of the PIS licence has enabled a new form of Account to Account (A2A) payment: credit transfers pre-filled by the beneficiary.

These pre-filled transfers, also known as Open Banking payments – PISP, simplify the collection activities in B2B and B2B2X areas, where bank transfers are one of the most commonly used payment methods, along with Direct Debits (SDD) and bank receipts (Ri.Ba.).

Characteristics and advantages of Open Banking PISP payments

The characteristics of these payments are potentially revolutionary for financial cash flow management, especially when integrated into management systems or Ecommerce platforms for collections involving all supply chain stakeholders:

1. Reduction of operational risks
   The bank transfer data are entered into the payment order directly by the beneficiary. The risk of manual errors or omitting data in the payment reference is reduced to zero.
2. Execution and crediting times
   The transaction request, sent via API by the beneficiary, can be generated in real time once the purchase is completed. The customer verifies the data accuracy and confirms the execution of the transfer, whether ordinary or instant (SCT Inst.).
3. „As a Service“ model
   Thanks to this model, companies can reduce costs and collection times and speed up time to market, leaving the management of payment complexities to the provider.
4. Automatic reconciliation
   Payment information is pre-set by the beneficiary. In practice, reconciliation is automatic, significantly reducing manual back-office activities and related costs.

This represents a significant paradigm shift: the payment generation flow no longer starts from the debtor, who typically accesses the internet/remote banking service and fills out the transfer form, but from the creditor, who sends the payment request to the customer.

The AIS license to improve offering and business processes

PSD2 and PISPs introduced another type of TPP: AISPs (Account Information Service Providers). The high potential of the services provided by AISPs allow companies and institutional figures (e.g. banks, credit institutions) to offer Embedded Finance solutions to optimise business processes throughout the supply chain.

From advance invoices to social lending: the AIS licence applied to credit

Applying the AIS licence to credit streamlines the risk assessment process and enhances cash flow efficiency, bringing significant benefits to both financial service providers and businesses.

Financial instruments such as non-recourse factoring and factoring, which allow companies to obtain instant cash flow by selling their commercial credits to third parties without having to wait for full payment from customers, can leverage the advantages offered by AISPs. Access to customers’ financial information simplifies the risk assessment process and reduces payment processing time.

Open Finance’s opportunities for credit assessment are not limited to traditional commercial credit. The accurate collection and analysis of aggregated financial data is also essential for social lending platforms, where collaborative financing between consumers and businesses requires, where possible, greater guarantees for suppliers in particular.

In this scenario, the integration of AIS and PIS-based services with IBAN verification tools, combined with new forms of digital onboarding, modular solutions to speed up the registration of new users, optimises supply chain financing activities and provides a more accurate picture of the applicant’s creditworthiness, enabling real time monitoring of the provided amount, simplifying refund activities and reducing the risk of fraud.

Businesses can directly benefit from these tools or, by integrating them into their offering, have the opportunity to offer new functionalities to their end customers, increasing their commercial capacity in terms of acquisition and cross-selling and increasing their competitiveness in the market. Download our whitepaper on Embedded Finance and how to streamline B2B2X payment processes to have a better understanding of the Open Finance opportunity.