Modernising Payments Across the Organisation

Corporate treasurers are the nerve centre of a corporation but their roles are quite complex. They manage everything from the corporate cash position to regulatory compliance to risk management to payments. They are also dealing with volatile market events, changes to business models and supply chains, and a new world fraught with payment fraud and cyber risks as well as industry trends such as real-time payments.

In this article, we explore how corporate treasurers can overcome their payment challenges, leverage the latest trends and thus modernise their company’s global payments processes.

Current challenges

In a typical corporate environment, financial processes like accounts payable and payments are managed locally or regionally in a shared service centre. There are often multiple payments systems including accounts payable systems, ERPs and treasury management solutions managing approval processes and execution of payments. Companies also have multiple banking relationships. According to FIS' 2017 Corporate Payments and Bank Connectivity Report that surveyed over 130 treasury professionals, 45% have more than five cash management and 57% manage more than 100 bank accounts.(Figure 1) This results in higher transaction costs and banking fees since each location uses its own staff and infrastructure to support the operation. Less transaction volume means higher bank fees and less negotiation power with banking partners. 

With disparate payment environments, corporate treasury also lacks the control and visibility into cash leaving the organisation, making accurate cash forecasting challenging.  It also opens the company up to payment fraud. According to the FIS study, 55% of treasury professionals state that increasing controls is a top challenge and driver for a payments project followed by payment fraud at 54% and cash visibility at 48% (Figure 2). 

Additionally, cybercrime has become so widespread, complex and frequent. The role of the treasurer has evolved to be a much more active player in mitigating this type of risk. Treasurers are relying on system providers to reduce the likelihood of a cyberattack or any other fraudulent payment event.  Those treasurers without the latest in payments technology feel the most exposed and least in control and are addressing that exposure by modernising their payments and bank connectivity processes through improvement projects. 

Fig 1:  Number of bank relationships

Fig 2:  Key payments challenges and drivers

Centralising and standardising payments is key

By streamlining bank connectivity and leveraging SWIFT service bureaus that are managing the implementation and ongoing management of a SWIFT connection for the corporation, companies can begin to simplify the complexity and reduce costs.  However, they can further simplify their payments processes. By centralising data from disparate A/P, ERP and treasury management solutions and standardising processes into a single payment factory, companies increase control, gain real-time visibility into cash and reduce payment fraud. According to the FIS study, 80% of respondents have some sort of payments centralisation in place, and 94% plan to have one in the next 12 to 24 months.  More than half (57%) of respondents have standardised over 75% of their legal entities. Sixty percent have standardised more than 75% of their payment volume. 

The trend towards greater centralisation and standardisation in payments processes has been accelerated by higher payment factory technology adoption rates, and the improvements in global processing functionality such as workflows, fraud control and approvals processes within payment factory technology.

A payment factory is a centralised payables and payment processing system that offers back-end integration with ERP systems (via secure interfaces), treasury management solutions and AP systems resulting in an aggregated and centralised payment processing centre. Further, it handles incoming payment information in multiple data formats while providing workflow management of payment approvals, a rules engine to determine the lowest-cost method of payment, and links to multiple banking systems. Increased visibility can also be realised through the use of consolidated account statements and reporting, giving a more complete view of liquidity. A payment factory can allow subsidiaries independence on a specified range of operations and processes as well as centralised visibility and control of their cash. It links cash out-flows directly with the centralised treasury to offer visibility and accuracy to a corporation’s cash activities and liquidity management. 

Some might ask why they can’t simply use their ERP to manage payments. The reality is that corporations are typically not using a single ERP instance but a variety of ERP systems and other systems that are creating payments. Ongoing ERP payments maintenance, configuration and customisation costs are therefore generally considerably higher than using a payment factory. Additionally, essential payment functionality such as cut-off checks, payment routing rules, fraud checks and flexible payment format changes are not available in the core ERP systems. 

Leveraging payment trends 

According to the FIS study, 35% of study participants are interested in open banking APIs. Thirty-five percent already have or plan to have an API banking initiative in place within the next 18 months, with 23% viewing it as a challenge or driver for a payments project.

A payment factory can act as a gateway to the banks’ APIs, which can lead to the consumption of increased solutions from a bank including balance inquiries, cut-off time checks or checking credit line availability as well as the facilitation of real-time payments. Corporate adoption of real-time payments has been slow, but as sales models and supply chain models continue to evolve towards just-in-time delivery and zero inventory type e-commerce models, corporations are developing more use cases for real-time payment instruments.  Insurance companies that are looking to improve the customer experience are also figuring out that they can leverage real-time payments to pay claims faster, differentiating themselves from their competition – at least in the short term.

This new banking channel and increase in real-time payments could add even more complexity and risk to a corporation that has not centralised and standardised payments into a payment factory. Corporate treasurers can take control of their payments and become advisors to the rest of the business on leveraging these new opportunities, keeping the control and visibility with the corporate treasurer. 

In addition to domestic real-time payment schemes popping up everywhere, interest in tracking cross-border payments is increasing and is much more timely. The challenge with these types of payments is that they are expensive and hard to track. Although still in the early stages, initiatives like SWIFT’s gpi and blockchain-based solutions are extended to cover corporate use cases. These initiatives are also requiring ‘hooks’ into these solutions via banking APIs or other more traditional interfaces to update the statuses of the payments. Modern payment factories have built supporting features to track the status of cross-border payments as soon as banks in the payment chain report status updates. It is also possible to know the fees involved in these transactions and as such provide better transparency.   

Conclusion

With complex environments, additional responsibilities, increasing risks such as payment fraud and cybersecurity, as well as new trends like real-time payments, it is critical that corporate treasurers make it a priority to review their payments processes and take the necessary steps to modernise these processes.  By streamlining bank connectivity with a managed SWIFT service bureau provider and by centralising and standardising with payment factory technology, corporate treasurers gain control and increase visibility into cash across the organisation, which can ultimately help them reduce costs, mitigate risks, leverage payment trends and overall simplify the payments process.