Why should a CFO care about open banking?

Why should a CFO care about open banking?

What kind of role are you looking for your Finance team to take in your organization? Is it a data gathering, report compilation role, or rather an advisory and strategic consultancy role for the entire business?

The concept of open banking dates back in time even earlier than 2015 when banking competition authorities and finance experts started thinking of a standardized approach that would open the European banking environment to embrace more innovation. Since then, the European Commission has passed a new regulation, the PSD2 in 2016, and more and more countries across the globe started to adopt open banking in one way or another. The driving force behind this movement is, for sure, financial services innovation.

Banks are among the most important stakeholders of any company in the world, nowadays. The way banking is done affects the way in which any company conducts its business. A CFO should be the first to care about their company’s banking relationships. Are these banking partners agile, adapting to changing contexts, providing support in the various markets dynamics? Or are they rather just stuck in their traditional, paper-based, heavily bureaucratic, and restrictive processes?

Innovation in your Finance department, as well as innovation in your banking partnerships, is built around 3 main concepts:

  1. real-time
  2. visibility
  3. optimization

The combined effect of all these three concepts results in a simpler and better life for you, as a CFO. Why is that? Because your team actually gets better and faster with their tasks. How do you want your team to act like — as an advisor and strategic consultant for the company. What are they rather doing — gathering data from a variety of sources, compiling reports, struggling with repetitive operations with external stakeholders, and hunting down missing pieces of information.

Now, let’s imagine your team had a tool or a magic machine that would do at least a few of the following tasks for them:

  1. collect, analyze and present cash position and cash flows, across all your geographies for cross-border visibility
  2. collect, execute and follow through end to end payments for operational optimization
  3. real-time reconciliations of your bank statements
  4. open and close bank accounts with any bank, following their respective KYC, for operational optimization
  5. on-going bad debt and risk assessments for better working capital visibility
  6. rolling cash flow forecasts, with end to end planning visibility
  7. automated investments of exceeding liquidity and real-time cash pooling
  8. real-time FX exposures calculation
  9. automatic routing of your customers’ payments for more cost-effective banking fees
For all these, there’s open banking.

Open banking turns finance operations real-time, provides end-to-end visibility on liquidity, expenses, payments and incomings and optimizes your operational costs and banking fees. For all these to be possible, there’s some technology behind it. At the heart of open banking are APIs, cloud platforms and enhanced security protocols. It’s the combination of these 3 elements that bring the real-time, enhanced visibility and costs optimization benefits of open banking.

APIs allow real-time exchanges of data. For example, an API can ensure the supplier’s credit control department is notified in near real-time of any incoming payment from the buyer. In turn, credit can be granted and the goods can be shipped. Also, APIs can be used to collect payments from customers in real-time, directly from their bank account, without the need for account details or costly fees.

Platforms in the cloud allow moving away from traditional batch-processing and SFTP folders set with each and every bank independently. You can now import data into your ERP directly from the bank API, already aggregated for all your banks in the cloud. You can also ensure banking data availability and visibility at various levels in your organization through dashboards with role-based access

Integration security: connecting to a bank API requires several building blocks, each of them encapsulating a security gateway. Your company as a final beneficiary will not connect to the bank API directly, but will most probably use an intermediary, a cloud API aggregations provider. The reason for using an aggregation solution is mainly the one of having one single line of connectivity to all your banks. The cloud aggregator will need to possess a PSD2 license, issued by a national banking regulator in the EU. This license will allow the aggregator to sign each and every API call to the bank. Even when signed by a licensed certificate, the API channel will not open for a specific beneficiary until that company has consented to it explicitly and obtained an access token. The access token is stored under encryption by the cloud platform and is used in each and every data fetch from the bank, along with the licensed certificate.

Open banking is about banks sharing financial information, in a simple, secure and transparent way. By defining clear standards for how financial data is shared, open banking puts companies in control of their financial data, in such a way that dealing with their banking partners is never again an operational burden. It also enables companies to securely share internally and use their information so they have better visibility on budgeting, investing, and financial planning. Open banking enables broad integration across the entire financial ecosystem of a company, from planning & budgeting to ERP and accounting as well as collections, payments and FX.

Open banking enables a company to move, manage and make more of its money. It brings clarity and improves control of all bank accounts and all data associated with them. It allows performing your financial transactions in the most cost-effective way and tracking them end to end.

Open banking is here.

Do you know how to use that information to the benefit of your business? Is your company ready for a real-time financial environment?

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