Form Your Ecosystem Strategy With E-invoicing
“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.”1
It is key for banks to retain the primary customer relationship in certain cases, for example in case of B2B payments it is the best not to let the payment transaction to be integrated into 3rd party systems, rather have the invoice payment in the online bank for SME customers or directly integrate the payment features into ERP systems. As a significant portion of payments is AP invoice payments, having to digital invoice data to be able to initiate the payment transaction from the bank will be a key capability for banks. This article briefly outlines what opportunities the advancement of technology, API banking and e-invoicing provides 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 (or together recently: integrated digital trade) have been historically fragmented because nor invoice data nor payment data has been available outside of the organisation which generates them, such as a purchase-to-pay provider, a company ERP system or the bank. Integrations between these systems were quite burdensome, because they assumed the active involvement and individual integration projects on both sides, which in most cases made the integration unfeasible.
Therefore, integrations only happened between systems, where integration was a must and both parties were willing to take the integration efforts. Recently data integration platforms emerged, but these also only cover a mere fraction of systems used by companies.
Invoice data was only available locally and in preset structures which was a serious barrier of 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 among 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 has enabled access to data to parties outside of the organisation. 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 and API banking possible from a technology perspective.
Standardization both in banking and e-invoicing:
Together with the increased number of integrations the need for standardized data structures 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 which can be accessed via the banks’ API interfaces. Open banking has paved the way for API banking, as banks started to use their open banking interfaces as a basis for building premium APIs that serve customers directly and not through 3rd party providers.
ISO 20022 migration: The migration to ISO 20022 standards contributes to the standardisation of payment messages.
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.
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 organised their internal financial administration processes.
With the technology advancements and the emergence of API banking, invoicing and payments will witness a convergence and can be bundled by various service providers:
1. 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 payment service providers (PSP) or they can provide embedded payments by integrating with banking APIs.
2. On the other hands banks are looking to provide beyond banking services, and e-invoicing and digital invoice management is a frequent use case where 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 value added services such as digital invoice management as part of a comprehensive liquidity management solution and the value realised on the access of invoice data.
The market scene will become more diverse than before, and banks must be prepared to carry out a segmented market approach.
Figure 1: Margin distribution scenarios for different service providers along the integrated digital trade process
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 requirement.
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.