by Alan Verschoyle-King, Managing Director, Head of Treasury Services, EMEA, BNY Mellon
Ask any corporate treasurer what he or she is looking for and the response is likely to be the execution of payments within a clearly defined time-frame and the certainty of funds to aid cash-flow management – imperative in economically unstable times. Europe’s Payment Services Directive (PSD) could, therefore, be the answer to a treasurer’s prayers.
The PSD is designed to establish clarity and uniformity of payments across the European Economic Area (EEA), by standardising the rights and responsibilities of all payment services providers (PSPs) and service users. This will, hopefully, result in the emergence of new payments solutions to further increase transparency and efficiency – welcome news for treasurers now and in the future.
If cash flow management is now the name of the game, the PSD will greatly assist play. Under the directive, the majority of payments issued and executed in the EEA must be completed in a maximum of three days following instruction and, in full, as specified by the PSD’s ‘full amount’ principle. Certainty of timing and value of funds received are therefore, guaranteed.
But is this too good to be true? Possibly. The potential problem– from the treasurer’s perspective – is the readiness– or lack thereof – of many small and mid-tier EEA banks to provide these improved compliant payments services.
Given the breadth of the legislation’s scope, it is easy to see why some banks have found meeting the PSD’s requirements a tall order. Compliance is a multi-faceted operation that demands fiscal and human resources that many banks, in the wake of the credit crisis, simply do not have.
Banks face the arduous and costly task of upgrading existing technology platforms to enable the display of payment and data at a granular level, as well as revisiting current service level agreements with foreign partner banks. In addition, they must find alternative revenue sources to replace those that will be lost under the directive – such as value dating, which eliminates revenue earned from float opportunities.
The fact that the legislation contains 23 areas of local derogation – permitting EEA member states to vary certain provisions at their discretion – further complicates compliance for banks with a multi-presence in the region. These ‘opt-outs’ will undoubtedly lead to individual market variations and banks’ operations must comply within each jurisdiction.
All things considered, it is easy to see why many banks have found themselves at a relative loss. However, the PSD is a compulsory initiative and banks may lose corporate business should they be unable to adhere to the directive’s requirements. Ultimately, the PSD works in corporate treasurers’ favour, as if their house bank(s) are unable to provide compliant services, they can look to other banks and PSPs.
It is fair to say that compliance has been a challenge for all, and even now no one bank can claim to have all the solutions to the problems compliance poses. However, one option worthy of consideration for banks that are struggling to comply is to outsource payment functions to a fully-compliant and technologically-capable specialist global payments provider. Payment services are a core business activity for such organisations and, as a result, they are, among the few to possess the required payment systems to ensure multi-market compliance.
The traditional outsourcing model is – understandably – not always an attractive option to smaller and mid-tier banks, because they are wary of the potential threat of loss of business to the larger provider.
It is for this reason that some specialist global payments providers – BNY Mellon among them – advocate and operate a non-compete approach to partnership by focusing on payments services rather than local retail or corporate banking services, which can eliminate competitor concerns. Such collaborative partnerships allow local and mid-tier banks to gain access to the necessary technology to provide corporate clients with an efficient and compliant payments capability at reduced cost and risk, with the additional security that the presence of a larger bank is no threat to their local business.
PSD compliance can, therefore, be a manageable – and beneficial – task. Although the directive is weighted in corporate treasurers’ favour, the directive can act as a gateway for banks to further expand into the EEA without necessarily increasing their physical presence. In addition, banks can reap further rewards from the increased efficiencies and resulting cost reductions.
The PSD is an example of how banks can help themselves by working to help their corporate clients. And entering into a collaborative partnership with a specialist provider is one way for them to achieve compliance. However, a true partnership approach should go beyond a high-service level offering: it should maximise the individual strengths of local and global banks in a way that allows the local banks to provide their corporate clients with optimal payment services both now and in the future.