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Managing enterprise payments continues to be complex and demanding. We live in a world where credit is tight and the macroeconomic environment is both risky and fast-changing. As a result, inefficiencies in payment processing and cash management can make the difference between a company's success and failure.
Today more than ever, businesses need integrated solutions that address all the multifaceted business processes relating to global payments and cash management. Many high-performing organizations are deploying a payment hub to streamline and standardize their payments processing across all enterprise applications, payment types and banks.
Acting as a single payment gateway, a payment hub helps increase efficiency, improve control over funds, mitigate risk, and enhance visibility.
A payment hub is more than just a centralized system, it is also a business strategy and a way of deploying resources efficiently. Essentially a payment hub brings together:
All payment and collection types (e.g. treasury, supplier payments, payroll, direct debits, cheques, etc.)
All balance and transaction reporting
All other corporate to bank exchanges (e.g. deal confirmations)
All transaction bank relationships
It is sensible to create a separate payment hub, designed for a range of payment types and for a wider group of users, who can each see their local or regional activity without accessing the overall enterprise treasury position.
A center of excellence for payments and collections on behalf of the entire enterprise, or more typically for a geographical region
Secure, standardized interfaces
Scalability across the enterprise
Centralized controls, with segregation of duties
Pan-enterprise visibility for treasury
Segmented visibility by units of their local/regional activity
Full audit functionality
Validation of payments
Standardized bank connectivity
There are a number of possible implementation models for corporates looking to adopt a payment hub. These include full centralization and a virtual or decentralized model. Which solution is right for a particular corporate will depend on several factors, such as organizational culture, structure and strategic priorities. The traditional centralized payment hub occurs where a limited number of people in one location manage the payments and collection processes for a specific region. It is not unknown for a corporate to manage its entire European payments infrastructure using a small number of people operating in a shared service center.
The virtual or decentralized payment hub allows some roles and responsibilities to be retained at the subsidiary level but the entire organization uses one central platform for managing payments, bank connectivity and relationships. Larger corporates may deploy a worldwide, decentralized model with hundreds of users. It is important to note that although these approaches are at opposite ends of the spectrum, they both allow corporates to enjoy similar benefits.
A good Treasury Management System (TMS) has many qualities and benefits for treasury. But usually they are not built to handle large volumes of bulk payments and the treasury team may not want users outside the treasury to access their platform. Furthermore, licensing models can make it prohibitive for non-treasury personnel to use a TMS just to view local bank accounts or work on cashflow forecasts.
For these reasons, it is sensible to create a separate payment hub, designed for a range of payment types (including bulk payment and Direct Debit files) and for a wider group of users, who can each see their local or regional activity without accessing the overall enterprise treasury position. A corporate can maximize the benefits of a payment hub by employing best practices in five critical areas:
Secure controls and standardized processes
Streamlined global payments
Robust multi-bank connectivity
Effective liquidity management and cashflow forecasting
Preventing fraud and financial crime
All organizations have some kind of internal control framework to manage which employees can perform specific tasks, such as making payments or viewing cash balances on bank accounts. Payment systems themselves may be too easily accessible, allowing bad habits to creep in, such as one person performing too many aspects of the payments life cycle, with the power to prepare and submit payment instructions.
Additionally, treasury teams are often too reliant on excel spreadsheets and other manual processes for performing mission-critical tasks. This can be error-prone, lacks security and it is difficult to maintain version control.
An efficient payment hub must therefore provide a platform for strengthening internal controls and visibility of banking, payment and treasury activities.
Specialists in international cash management often use domestic payments wherever practical by opening bank accounts not only in countries where they have subsidiaries and branches but also in countries where they have a concentration of payments or collections.
It is vital to take into account any local differences in markets where the corporation has a significant flow of payments and collections and find a solution that incorporates these local requirements in order to benefit from maximum flexibility and lowest cost routing. The launch of SEPA is providing to be a catalyst for many organizations to implement payment hubs on a regional or even global basis; and collection hubs projects are also growing in popularity.
Most medium-sized to large organizations have multiple bank relationships and use a wide range of e-banking systems. The trouble is that each of these systems is different, with disparate protocols, passwords, smartcards or USB tokens.
So unfortunately, we have a disconnect between the corporate's back-office systems and their banking partners, with inefficient and insecure processes. This leads to risk or error and potential fraud.
Secure multi-bank connectivity is at the core of the most successful payment hub initiatives. Increasingly, corporates and non-bank financial institutions are joining SWIFT as a proven way to achieve a range of financial, operational and strategic benefits.
Most organizations do not have the instant visibility and control they need to optimize working capital. Payments and cash positions are tracked separately, and the combination of globalization and mergers and acquisitions has led to an expansion of international and domestic banking relationships that further fragment processes and control.
The increasing complexity of banking relationships and the need to consolidate balance and transactional data affecting available working capital requires both global accessibility and real-time visibility. It is no longer viable for companies to be operating on partial or out-of-date information.
A payment hub provides visibility over all bank accounts across the enterprise and gives a clearer picture of cash flowing into and out of the organization. Automating the reporting of cash balances directly from subsidiaries' bank accounts ensures that accurate and up to date data can be provided to the treasury team and other payments specialists, which is essential in determining the true cash position at any point in time.
Throughout the business world there is increased emphasis on fighting financial crime, including but not limited to that perpetrated by cyber-criminals, and covering "Know Your Customer" (KYC), anti-money laundering (AML) and compliance with economic sanctions.
Corporates may need to implement increased controls, not only to remain compliant but also to be able to provide audit trail information about suspicious beneficiaries, payments and transactions flagged by their banks.
Creating a payment hub with an integrated sanction screening capability is a significant advantage in the fight against crime. In addition, similar screening solutions can be deployed to identify inappropriate payments being directed to employees' private accounts, thus helping to prevent internal fraud issues.
While cost has traditionally been the main driving factor behind the adoption of the payment hub model, drivers have now evolved to include security and compliance as well as business process improvement. Today most CFOs adopt the payment hub model because it provides compliance and tangible operational efficiencies for their organization.
Looking ahead, payment hubs are reaching a level of sophistication that goes beyond operational efficiency and now touches on working capital management. Indeed, this model provides numerous opportunities to improve working capital, such as using Direct Debits, which provide a higher degree of certainty about the amount and timing of a payment, enabling easier reconciliation, more accurate cash flow forecasting and improved DSO (Days Sales Outstanding). Similarly, invoices can be distributed electronically, which is faster and cheaper than paper and helps to reduce DSO, accelerating cash flow.
There is also a growing trend of strategic collaboration with suppliers along the supply chain.
It is important to give suppliers visibility into when and how they will be paid, so much so that not being able to provide this information can become a competitive disadvantage. There are a growing number of implementations where a payment hub feeds a supplier portal – a place where suppliers can submit invoices electronically, check the status of their invoices, see when they are going to be paid and download remittance information. These supplier portals create the ideal platform for a buyer to negotiate early payment discounts with suppliers, via dynamic discounting, or to partner with banks to provide supplier finance. This helps suppliers to improve their cash flow and cost of borrowing, while simultaneously positioning the buyer to negotiate extended payment terms, hence improving the buyer’s own DPO (Days Payables Outstanding).
The payment hub model is by no means a new phenomenon but it is evolving rapidly to meet the needs of corporates as their requirements change. It will most certainly continue to be an important tool in the strategic pursuit of centralization, process efficiencies and better working capital management.
There are major shifts happening in the B2B payments technology space, and priorities are shifting as well. We surveyed more than 300 banks and corporates to find out where they stand, and what they expect to see in the future of business payments.
We brought together the most prominent thought leaders on payments and banking to share their predictions on what the next decade has in store. From Open Banking, to more sophisticated fraud schemes, to real-time payments, to the rise of artificial intelligence and process automation... they all agree the innovation and shifts in the marketplace will require you to adapt and evolve.
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