Confirmation of funds is a banking service that has given an additional boost to commercial transactions, especially in a context marked by COVID-19, in which delinquency, late payment of invoices and lack of funds in bank accounts is all too common.
This service is regulated by the Payment Services Directive at European level (PSD2), and goes one step further in improving the efficiency of transactions at the time the payment is made by providing greater control to payment service providers (PSPs) and credit card issuers.
How does fund confirmation work in PSD2?
Fund confirmation is a service that makes it easier for PSPs to confirm in real time the availability of funds in their customer’s direct debit bank account. This allow them to find out in advance whether their customers have enough liquidity before carrying out the commercial transaction.
Typically, this verification is performed as a step prior to executing a credit or debit card payment through their linked account and it must be accessible online. The process is always carried out under the users’ consent, and it is assumed that customers are holders of a credit or debit card associated with PSD2.
At the technical level, the steps to make this confirmation of funds are usually as follows:
- Prior to the first request, the user undertakes to give explicit consent to the bank to respond to the PSP with the confirmation of funds.
- The PSP creates a confirmation of funds request that it sends to the bank.
- The bank asks the user for consent so it can respond to the confirmation of funds request. To do this, they have authenticated with their signature key in their bank.
- Once approved, a token is created that allows the funds to be confirmed unaided.
- At this point, the bank answers the PSP as to whether or not the user has enough funds available to carry out the transaction. The bank account’s funds are never blocked.
Once the process is complete, the transaction can be completed and the funds are deducted from the customer’s current account, as is the case with any other commercial transaction.
Advantages of confirmation of funds
Confirmation of funds has a number of advantages, for both the company making use of this service and the customer.
This makes it possible to see whether the customer has funds before closing the sale.
The main advantage is obvious. Before closing any sale, the company will be able to know in advance whether the customer has enough funds in his or her bank account to carry out the transaction. And if he or she has insufficient funds, the operation will be easily rejected. Thus, among many other things, companies will be able to avoid possible returns due to lack of funds and their associated costs.
Scheduling your transactions with peace of mind
Through confirmation of funds, you will be able to schedule your services with the peace of mind of whether you can make the transactions derived from them. In this way, you will have greater certainty that you will be able to collect them and avoid unforeseen events that may affect your cash flow and your customers’ liquidity.
Innovation in the customer journey and increased customer satisfaction
By knowing in advance whether the transaction is feasible or not, you can design your product or service so that the user experience is innovative and different from that of your competitors, ensuring a superior user journey that extends the Customer Lifetime Value. A new service that improves the quality of service and increases the possibilities of sales.
This makes it easier for your customer to trust your services
The customer must give explicit consent for the company to access their accounts to confirm whether they have funds available. At BBVA, this process has a secure system with enhanced authentication that is based on an online banking signature key (SCA), which also meets all the specifications of the PSD2 regulation at European level.
Banking APIs, an essential element for confirming funds
At the technological heart of this ambitious Community regulation, which aims to facilitate the confirmation of funds service, are APIs or Application Programming Interfaces. These are a set of procedures that enable communication between the applications and platforms of companies known as Third Party Providers (TPPs) and the banking entity.
APIs ensure communication between PSPs and banks so that the confirmation of funds can be carried out with all the security guarantees provided for in the PSD2 Directive. In addition, they allow this service to be integrated within their technology platforms so that this service is performed without the need to explicitly access the customer’s bank account, although there will ultimately be a need to enter it to guarantee the customer’s consent and confirm the availability of funds.
BBVA PSD2 Funds Confirmation
The PSD2 Funds Confirmation API enables card issuers to stay one step ahead in the financial relationship with their customers. They can thus find out in advance the feasibility of their customers’ transactions at the time of the request and always move within a predictable and seamless framework.
This API offers, among other things:
- Managing the customer’s consent for BBVA to confirm the availability in their account of a certain amount, and the authentication of all actors in the process.
- Managing authorizations, being able to consult at all times the status of the consent, from the status of the signature, the deletion, the final confirmation, etc.
- Availability of information at the right time, that is, before making a transaction.
In order to perform the verification, it must be a debit card issued by a third party that is associated with a BBVA account.
In short, confirmation of funds have become an increasingly important service to identify whether a customer has enough liquidity to make the transaction. Open banking and APIs have boosted the use of this service, and facilitated integration within third-party platforms.