What is open banking and how does it connect to invoice payment workflows?
Open banking is the framework that requires banks to share customer account data and enable third-party payment initiation via secure APIs, subject to customer consent. Under PSD2 in Europe, banks must provide access to account information (AIS) and payment initiation (PIS) via standardized APIs. Open banking enables AP platforms to initiate supplier payments directly from buyer bank accounts without needing traditional bank file transfers, and to retrieve bank statement data for real-time reconciliation.
How does open banking integrate with AP payment workflows?
Open banking AP integration: (1) AISP (Account Information Service Provider): AP platform connects to buyer's bank account via API to retrieve real-time balance and transaction data, enabling continuous cash flow monitoring and automated reconciliation of payments against AP entries; (2) PISP (Payment Initiation Service Provider): AP platform initiates supplier payments directly via bank API (bypassing traditional bank file/SEPA file upload), enabling real-time payment confirmation; (3) Reconciliation: incoming payment confirmations from the bank API automatically mark AP invoices as paid without manual bank statement import.
Frequently Asked Questions
- Does open banking improve invoice reconciliation?
- Yes. Open banking significantly improves reconciliation by: (1) Real-time bank statement data eliminates the overnight or T+1 delay in traditional MT940 or bank file imports; (2) Payment confirmations are received via API callback, immediately updating the AP subledger; (3) Automated matching of bank transactions to AP entries uses structured payment references (invoice number, supplier ID) embedded in the payment instruction; (4) Unmatched bank transactions are highlighted for immediate investigation rather than accumulating in an end-of-month reconciliation. Straight-through reconciliation rates of 95-99 percent are achievable with open banking and structured payment references.
- Is PSD2 open banking available outside the EU?
- PSD2 mandated open banking in the EU and UK (implemented as the Open Banking Standard via the Competition and Markets Authority). Similar frameworks exist in Australia (Consumer Data Right), Singapore (MAS API guidelines), Brazil (open finance), and Canada (in development). The US has no equivalent mandate but banks and fintechs provide open banking APIs voluntarily. In markets without a mandate, API availability and quality vary significantly between banks.