PSD2

PSD2; fit for purpose for cash management tooling?

7 minuten leestijd

Due to COVID-19, we can expect that both private individuals and all kinds of businesses (including self-employed and freelancers) will increasingly face trouble in surviving financially. As a result, it will likely have an impact on payment obligations. Especially in times of crisis, strong cash management and forecasting is crucial as the predictability of cash flows is negatively affected by the current situation. We believe that these developments will increase the urgency to monitor the financial position of private individuals, households and all kind of businesses and may increase the need for cash management tools in order to create a better understanding and insight into their financial position (and possibilities). So, how can PSD2 services be of help in terms of cash management during the current Corona crisis?

Until the Corona crisis came along, on average one out of five households faced  financial problems and approximately 40 percent foresees difficulties in surviving financially (and to meet financial obligations until the end of the month), according to NIBUD[1]. Thereby NIBUD[1] states that 32 percent of all Dutch households has payment issues (late payments caused by e.g. resignation or insufficient earnings in relation to fixed costs). As a result of the Corona crisis, it can be expected that these numbers will increase dramatically.

Curators and rescuers already expect more than one million additional unemployed people and a wave of business bankruptcies because of the Corona crisis. Atradius, the Dutch credit rating agency, previously expected an increase of one percent compared to 2019 in the number of bankruptcies for 2020[2]. But due to the Corona crisis, Atradius even expects the number of bankruptcies in the Netherlands to increase by 3 percent in 2020 compared to 2019 (in 2019, the number of bankruptcies in the Netherlands was approximately 4,300)[2]. The global economy will be hit unprecedentedly in 2020 due to the outbreak of the Corona crisis.

Thereby, the International Monetary Fund (IMF)[3] predicts that the global economy will shrink by 3 percent this year. But if the pandemic lasts longer, the damage can become much greater. According to the IMF[3], it can be expected that the Dutch economy will shrink by 7.5 percent in 2020 due to COVID-19.

Hence, we can expect that both private individuals and all kinds of businesses (including self-employed and freelancers) will increasingly face trouble in surviving financially. As a result, it will likely have an impact on payment obligations. For instance, payments of rent will be withheld or postponed, tax payments, interest payments or debt repayments will be deferred and so on.

Especially in times of crisis, strong cash management and forecasting is crucial as the predictability of cash flows is negatively affected by the current situation. We believe that these developments will increase the urgency to monitor the financial position of private individuals, households and all kind of businesses and may increase the need for cash management tools in order to create a better understanding and insight into their financial position (and possibilities).

So, how can PSD2 services be of help in terms of cash management during the current Corona crisis?

How PSD2 services can be useful during COVID-19?

One of the possibilities PSD2 (the second Payments Service Directive) offers, is Account Information Services (AIS), which enables businesses and individuals for instance, to have an immediate and integral overview of all bank accounts in one application. Subsequently, this provides a thorough insight into the financial position, financial obligations and (financial) possibilities. On top of that, the ability to analyze banking accounts in a matter of seconds increases the predictability of cash flows, which enables businesses and individuals to bear for a cash squeeze. Also, when applying for a (bridging) loan, having an integral overview of the liquidity position might come in very useful as banks or credit rating agencies are immediately able to assess the credit worthiness and financial health.

Buddy payment

An example of a company that recently obtained a PSD2 license is Buddy Payment[4]. It uses access to banking transactions to help private individuals and households in financial distress. This is a very interesting case, especially in this turbulent time, full of unknown (cash) challenges. Before we get to that point, we will explain briefly how Buddy Payment works.

Buddy Payment is an application that was originally developed to reduce the debt position of people and to avoid indebtedness in the future. Based on a thorough transaction analysis, the application creates an overview of fixed costs and disposable income per period. Thereby, it provides useful insights in the level of allowances people are entitled to, based on their income (e.g. childcare, rent and healthcare allowances). Hence, Buddy Payment is a means to help preventing people to end-up in debt and to get introduced to debt collection agencies or bailiffs.

As such, Buddy will help households to get more control over income and expenditure. It also helps them making the most optimal financial choices. Due to PSD2, this can be done faster than ever before. Yet, during these times apps like Buddy Payment can be of great value when deployed as cash management tooling.

Invers

Another example of an organization that knows the tricks of the trade is the FinTech Invers. The PSD2 license enables Invers to automatically retrieve banking transactions and to offer a real-time financial analysis tool. As such, Invers enriches transaction data with additional insights and delivers extensive financial analyses.

Invers collaborates, for example, with companies like PIN Voorschot (business credit provider) and RiskQuest (risk management advice)[5]. The three organizations allow SMEs to quickly apply for a (bridging) loan, for instance organizations in the hospitality industry that operate seasonally. Accordingly, this service can be useful to organizations that are in need of short-term liquidity. 

Other companies that acquired a PSD2 license

The number of companies that acquired a PSD2 license is increasing. For example financial management apps like Peaks[6], Bizcuit and Yolt. These companies offer services in order to have real-time insights in multi-banking activities. Thereby, Peaks makes it possible to invest your change (in Dutch: 'wisselgeld'). Another example is Floryn. The license enables Floryn to quickly assess a financing application and creditworthiness of prospects, partly based on a transaction analysis of the applicant's bank accounts[7]. Lastly, Tink. This start-up built an open banking platform to enable banks, FinTechs and other start-ups to develop smart and personalized financial services based on (financial) data. The Dutch bank ABN AMRO, has for instance developed the Grip app in partnership with Tink to give their customers a more complete mobile banking experience, using account aggregation to let users see all their different bank accounts in one screen.

Flexibility and endurance during COVID-19

This crisis situation entails uncertainties and challenges for everyone. On top of concerns about health and well-being, it is expected that a lot of people and businesses will face financial difficulties. Society and the economy are tested for their flexibility and endurance.

PSD2 services can be used to develop and offer next level cash flow forecast tools as part of the customer journey or loan application which is leveraging on accurate transaction data. More specifically, it enables people and businesses to gain more control over their financial position and financial obligations, minimize (or even avoid) out-of-cash situations and quickly apply for (bridging) loans, and might therefore be key in being more flexible and increasing endurance during the Corona crisis. For this reason, we believe that PSD2 can be the enabler to get insight in cash management and is therefore fit for purpose in a crisis like this.  

We are truly curious in the next wave of PSD2 applicants. If you are curious to these developments too, stay in touch with us and check our website and  LinkedIn page regularly. The follow-up on this first blog out of a series will follow soon.

This blog was written on behalf of the KPMG Payments & Open Banking team.

Authors: Josephine Veerman (Senior Consultant, KPMG Digital Advisory) and Roos Kaan (Consultant, KPMG Digital Advisory)

Wondering whether your business might be applicable for a PSD2 license?

he KPMG Payments and Open Banking team has quite some experience in this field. We helped with application and approval processes of PSD2 licenses for several organizations. Typically, this process starts with a quick scan, followed by an advice on scope and structure, creating a business case, conducting a gap analysis (e.g. on finance & risk, governance & legal, compliance & policies and IT & operations) and defining and executing a roadmap for follow-up whilst at the same time having a dialogue with DNB itself.

Besides offering help in obtaining the PSD2 license, KPMG can also provide help with implementing, managing and tracking of governance, risks (e.g. SIRA) and compliance-related processes. Once the license has been provided by the DNB (or another authorized central bank in the EU), it's of great importance to be able to demonstrate to be in control. KPMG Sofy GRC[8] can help businesses with these governance, risk and compliance processes (GRC) by providing real time board level transparency on actual compliance, control effectiveness and risk exposure through the use of data and analytics.

The KPMG Payments and Open Banking team

Our combined expertise of the banking sector, payments, digitalization, platform business models, strategy, regulation and implementation make us distinctive compared to other companies. Curious to find out what we could mean for your business? Please feel free to visit our webpage or to contact any of our specialists.