“Digital firms are staking a claim on the opportunity. But ecosystems are an attractive play for any service business that can claim ownership of the primary customer relationship. Those that have the strongest relationship with the customer enjoy the highest profit margins in ecosystems, and thus the most sustainable and lucrative business model. Participating in an ecosystem, or organizing one, provides the opportunity to boost otherwise shrinking banking returns.”
It is key for banks to retain the primary customer relationship in certain cases, for example in the case of B2B payments it is best not to let the payment transaction be integrated into 3rd party systems, rather have the invoice payment in the online bank. One way for this is getting into invoice management, or at least get access to digital invoice data to be able to initiate the payment transaction from the bank. This article briefly outlines what opportunities the advancement of technology, open banking, and e-invoicing provide for banks to take on a role in an invoicing and payment data ecosystem.
IT evolution caused the revolution and brought about the emergence of data ecosystems
In the past process and system integration was hardly viable
The purchase-to-pay or order-to-cash processes have been historically fragmented until very recently because neither invoice data nor payment data has not been available outside of the organization – purchase-to-pay provider or company ERP system and the bank – providing this service inside or outside of companies. Integrations are burdensome in this case because they assume the active involvement and hard coding on both sides. Therefore, integrations only happened between systems, where integration was a must and both parties were willing to take the integration efforts.
Invoice data were only available locally and in preset structures which were a serious barrier for the multiple integrations necessary to integrate various ERP systems or service providers with banking systems. In banks, payment message data structures were also likely to differ from each other. As a consequence, very few integrations and structured data exchange happened between counterparties. SMEs were completely cut off because of the high efforts needed for integrations.
APIs provide access to data
The rise of cloud-based services and increased use of APIs have enabled access to data to parties outside of the organization. API integration still needs to be done, but there is an opportunity to integrate with 3rd parties, where the system which publishes the API does not need to be actively involved, only the party wishing to integrate must make integration efforts.
The technology developments related to APIs made the open banking regulation possible from a technology perspective.
Standardization both in banking and e-invoicing:
Together with the increased number of integrations the need for standardized data structured emerged in order to decrease integration efforts for all economic players. Therefore, several regulatory measures have been and are being taken on both banking and e-invoicing.
Open Banking: Because of open banking regulation banks had to implement standardized APIs and must provide access to data for account information and payment initiation to 3rd party providers. Although the implementation of open banking regulation differs among banks, nonetheless there is structured data that can be accessed via the banks’ API interfaces.
E-invoicing standardization: Besides regional and global interoperability initiatives and implementation of standards, the largest push towards e-invoicing is the local implementation of e-invoicing(like) schemes, which define local standards for each country. These tax regulations result in a market-wide availability of digital invoice data in local standards.
The combined effect of APIs and standardization: The rise of cloud-based services and increased use of APIs, as well as the introduction of standards, enable the integration of invoicing and payments, as integration efforts have decreased in parallel to the availability of structured data.
Evolution of the e-invoicing and payment ecosystem
As processes were fragmented, specialized service providers – purchase-to-pay providers and banks have supported the enterprise sector independently of each other with invoice management and payments. It was up to each company how they organized their internal financial administration processes.
With the technology advancements and open banking regulations, the invoicing and payment offering can be bundled by various service providers:
- E-invoicing and purchase-to-pay providers, historically operating in the domain of supporting financial administration can now tap into the payment market by becoming a payment service provider (PSP)
- On the other hand, banks are looking to provide beyond banking services, and e-invoicing is a use case that they conclude to start.
This change is reflected in the shift of the competitive situation: banks are facing the situation where they need to share the payment margin with 3rd party providers, while they can also decide to realize margin on e-invoicing services.
The market scene will become more diverse than before, and banks must be prepared to carry out a segmented market approach.
Banks must be prepared to serve different players with different API-based services with the preparation of value-added API sets and bundle or unbundle these API sets as per customer segment requirements. This API-based service offering can even reach the end customer with a very wide service range – i.e., SMEs or the corporate segment, with the bank providing various invoice-related services ranging from a full invoice management solution for SME companies to a mere API for providing payment transaction data for corporate customers for reconciliation purposes.
This concept is reflected on the figure below as per different API sets for different customers:
This is an approach that helps the bank:
• serve multiple business journeys and business needs for all customers in a flexible way,
• publish value-added APIs besides the standard open banking APIs,
• support its ecosystem strategy and ensure that the bank can maximize returns on its API investments.
 Beyond banking: How banks can use ecosystems to win in the SME market by McKinsey