The UK's Open Banking Implementation Entity (or OBIE) has become recognised as a global authority about interactions in the triangle between customers, banks – or Account Servicing Payment Service Providers (ASPSPs) – and Open Banking providers, the type of Third-Party intermediary or TPP introduced by both UK Open Banking and the EU’s 2nd Payment Services Directive.
This global thought-leadership position is unfortunate as, in its latest scope expansion, it propagates misinformation about Cash Management Sweeps.
Under the OBIE definition this would involve a TPP drawing in balance reports on customer accounts at ASPSPs, seeing that the accounts had various balances (including overdraft), and then (after suggesting to the customer or else acting on a standing mandate) executing a series of credit transfers via UK Faster Payments to achieve the outcome.
The outcome would normally be to minimise overdrafts by moving credit balances, or else bringing all accounts but one to zero, accumulating the net credit balance on the account offering the highest interest or on the account with the lowest overdraft rate.
That is laudable but it is not a Sweep.
A Sweep, or Zero-balancing, is a fully automated and computer-programmed operation to alter the balance on a 'slave' account to zero and transfer that balance to the 'master' account.
By definition the operation occurs over accounts that are all at the same bank and it is conducted in the bank's nightpass, after all debits and credits to both accounts have been posted and settled.
Its main aim is to reduce interest paid or increase interest received, so it operates on the Available Balance on the account, even if this differs from the Ledger Balance (e.g. because the Ledger Balance contains the proceeds of cheques paid in, where the proceeds have not yet been added to the Available Balance).
The OBIE's product is a cross-bank cash concentration, which is subject to several pitfalls e.g. the account balance obtained by the TPP does not include the debit of card payments, cheque payments, ATM withdrawals and so on that have been transacted but which have not yet been posted across the account that the balance report is on. Items pertaining to low-value clearings may not be posted to the account until the ASPSP's night-pass, occurring in the early morning of the following day.
Equally there could be reversals of items in the works but not yet included in that balance such as cheques deposited which have bounced. The time at which the balance report is taken cannot be relied upon to include such items and the customer may not yet know about them either.
A detailed knowledge of the ASPSP's posting cycle is required in order to take the risk of making a payment against an interim balance. It is much safer to wait until the ASPSP's final postings have been completed before attempting a sweep. The customer could clear an account to zero and later have card payments against it refused, and cheques and direct debits bounced.
All of this seems to have gone over the OBIE's head, but then it has been the OBIE's conceit to imagine that they are breaking new ground, when these issues have been studied and solved for in the corporate banking space for 30 years or more.
Bob Lyddon is an author for accountingcpd. To see his courses, click here.