If the European Commission's revamped Payment Services Directive had a goal of enticing more innovation and, thus, more startups to enter financial services, Modulr Finance Ltd. CEO Myles Stephenson got the message.
Stephenson helped create Modulr as a tech-driven business-to-business payments platform, utilizing application interfaces, a web-based dashboard and integration into payment rails to encourage businesses to shelve paper documents and move into electronic — and much faster — B-to-B payments.
In addition to eliminating a lot of friction related to business payments, Modulr wants to operate as a gateway to payments rails and as a layer of financial services in which customers tend to keep their traditional bank relationship, but don't really need it for B-to-B transactions. Modulr, founded in 2015, received its authorization from the Financial Conduct Authority in late 2016 to operate as an electronic money institution.
"What we are trying to do is turn reconciliation on its head," said Stephenson, who previously created and sold CorporatePay, a company stressing virtual cards for supplier payments.
Rather than aggregating business payments into a single bank account and reconciling later, Modulr issues individual accounts for each customer, making it easier to monitor payments and inform the customer when money arrives, Stephenson said.
"We reconcile through individual account numbers," he added. "We can also deploy calculations or splitting on the account for marketplace businesses, and can send out commissions or repayments on sales as they flow into the account."
When the commission introduced its new version of the Payment Services Directive, or PSD2, about four years ago and began enforcement of directives last year, the hand wringing began in earnest as to what it meant for banks and payments providers.
A complex regulatory tool with many layers, PSD2 essentially opened the door for third-party providers to get more leverage in offering payment processing services. While the directive is still just taking hold and is expected to be national law by 2018, it more clearly established that non-banks could provide a range of payments services, including money transfers outside of the European Union.
Modulr is an example of what PSD2 creators had in mind — allowing savvy tech companies to create APIs that will connect to the country's faster payments rails or card brand network rails.
"PSD2 is a planned journey in the way regulators have introduced change and technology in the U.K., but it is a next step in allowing non-banks to process payments," Stephenson said. Another big technology push occurred when Visa and Mastercard opened their networks to developers, Stephenson added.
It also became apparent that the major card networks were interested in the faster payments rails when Mastercard acquired VocaLink in the U.K.
With so many real-time payments projects taking place worldwide, Modulr figures it is going to fit in nicely wherever it lands, Stephenson added.