The Continuing Quest to Modernise Corporate Payments and Bank Connectivity in the Digital Age

In an era of digitisation, payments acceleration, and new techniques to exchange and integrate transactions and data, treasurers and finance managers have unprecedented opportunities to modernise corporate payments and bank connectivity. Furthermore, as FIS’ 2018 market report reveals, treasurers are enthusiastic about leveraging these opportunities. Some are creating an entirely new technology infrastructure while others are enhancing their existing capabilities to provide their organisations with the payments efficiency, security and richness of data that will support new and emerging digital business models and drive success. The most successful of these initiatives are those that replace complexity and fragmentation with simplicity and transparency, and enable treasurers to focus on their core purpose.

The payments and connectivity challenge

We have seen a variety of important innovations over recent years, such as the ability to integrate multi-bank SWIFT connectivity directly into core treasury and payments applications, greater use of standardised XML ISO 2002 payment formats and continued treasury and payments centralisation. Although these have delivered significant benefits, treasurers and finance managers still face a variety of challenges. In many cases, processes, controls and connectivity remain fragmented and inconsistent across entities, locations and banks. This results in high costs, magnifies the risk of fraud and cyber-attack, and makes it difficult to achieve visibility and control over cash and liquidity.

Consequently, these issues underpin treasurers’ payment and connectivity objectives (fig. 1). As new technologies, payment methods and clearing mechanisms emerge, treasurers are keen to leverage the opportunity to modernise payments and bank connectivity strategies to meet these objectives. They are also focused on equipping the business to support digital business models and leverage the advantages of faster or real-time payments and better, more integrated data.

Fig 1 - Key drivers for corporate payments and connectivity projects

Catalysts for payments modernisation

FIS’ report highlights three key innovations that are driving corporate payments modernisation projects:

 
The ability to integrate data and transactions across systems and banks via application programming interfaces (APIs).

Faster, more predictable cross-border payments via SWIFT gpi (global payments innovation).

The ability to move payments processing to the cloud.

These three opportunities are closely interlinked. The use of APIs offers enhanced connectivity between financial counterparties and systems. Today, most multinational corporations use either host-to-host solutions or SWIFT gpi for bank connectivity, which allow for only daily or periodic exchanges of data and transactions.

There are often exceptions, resulting in the fragmentation and inefficiency that hamper payments processing and bank information retrieval. Using APIs, transactions, status information and data can be exchanged dynamically, enabling real-time end-to-end flows, and rich, data-driven insights into cash flow, liquidity and risk. This will be further enhanced by greater standardisation of APIs.

One driver for the growing use of APIs to exchange and embed data and transactions directly into internal systems in real-time is the expansion of faster or real-time domestic payment schemes, and growth of new payment methods, such as mobile wallets. This applies particularly in regions such as Asia where such payments are becoming the norm rather than the exception and in industries that have large retail payment and collection volumes, such as insurance. With 40 real-time payment schemes now live globally, and a further 13 in development, these immediate payments and collections will become increasingly prevalent, with implications for working capital, supply chains and liquidity.

Modernising cross-border flows

While the value of real-time domestic payments is currently limited to certain use cases, industries and regions, the opportunities presented by faster, more predictable cross-border payments through initiatives such as SWIFT gpi are far more compelling.

Traditionally, the timing of cross-border payments has been unpredictable and the fees levied by each correspondent bank have been opaque and difficult to reconcile. Tracking payments through their life cycle has also been a highly manual, costly exercise. As a result of this unpredictability, payers often have to make payments far earlier than the settlement date to avoid the risk of late payment, therefore creating unnecessary liquidity demands. Payees cannot forecast cash flow and may be obliged to hold additional cash as a buffer to late receipt.

SWIFT gpi offers same-day settlement (with more than 50% of SWIFT gpi payments settled within 30 minutes), end-to-end payment tracking, visibility over fees, with no deductions, and complete remittance information. More than 200 banks have now signed up, that together represent more than 80% of SWIFT’s cross-border payments traffic, and all member banks will support SWIFT gpi by 2020.

However, if data is exchanged with banks and between systems only daily or periodically, using e-banking, host-to-host or SWIFT connectivity, treasurers cannot gain the full advantage of predictable, traceable same-day cross-border payments and collections. Consequently, as demand and adoption of SWIFT gpi increases, so too will the value of APIs for bank connectivity to accelerate and enrich processes and information flows from end-to-end.

Creating simplicity, leveraging expertise

One of the fundamental success factors of the introduction of faster and real-time domestic and cross-border payments, and also the use of APIs for connectivity and integration, is ease of adoption and the quality of the user experience. These are among the major reasons for the rapid growth, and significant client interest in the use of cloud-based solutions, including software as a service (SaaS). Modernising payments with cloud-based technology enables treasury departments to focus on core activities in cash, liquidity and risk management rather than expending resources on routine, manual activities and maintaining systems or interfaces. It also enables treasurers to take advantage of new opportunities quickly and without significant implementation, an essential requirement at a time when companies in all industries rapidly move towards digital business models.

Best-in-class companies that are modernising their payment processes and bank connectivity are already reporting high levels of success in meeting their project objectives (fig. 3). Of those, 67% report improvements in controls; 66% have demonstrably reduced their fraud risk, and 62% have improved cash visibility. Crucially too, these treasurers are equipping their organisations to face challenges and leverage opportunities as digitisation and modernisation of payment infrastructures around the world continues. Key to a successful payments modernisation project is to create simplicity and transparency, replacing the complexity, fragmentation and opaqueness that has often plagued treasurers’ efforts to enhance visibility and control. The use of APIs and cloud-based solutions can be vital tools to achieve this, enriching and accelerating transactions and information flows to support the business through changes ahead.   

Fig 3 - Payment modernisation project achievements