FinTechAutomationAn Intelligent View of Payments

An Intelligent View of Payments

The payments business is huge and poised to grow, with McKinsey estimating that payments services generate approximately US$900bn in revenues annually across all transaction types. This is being fuelled by an increase in cross-border and domestic trade, particularly in emerging markets where trading on open account is growing as an alternative to traditional letters of credit (L/Cs).

In response, the urgency with which large corporations manage the financial supply chain has grown since the financial crisis of 2008 as exposure to risk in the cycle has increased. Corporations are rightly concerned about supply chain disruption, risk of trading partner default and liquidity issues. Managing cash flow and risk have become the top priorities.

In turn, this means today’s treasurer is busier than ever with a host of strategic initiatives under way. One key element is the implementation of operational efficiencies. Streamlining transaction processing not only lowers costs and generates process improvement; it also contributes significantly to risk and liquidity management. Because efficient interaction with banking partners is so important, treasurers are increasingly turning to banks for assistance.

In the current economic climate, and with the technology available today, the customer is increasingly in control. This means that customers are more informed than ever, and expect consistent real-time service across multiple channels. Corporate treasurers are particularly influential in this area based on the bank revenues derived from their business. They need tools and solutions that benefit their strategic goals, and as a result are becoming more selective in the banking partners they choose. Enhanced integration of payment and cash reporting and visibility into transaction processing are two of their high priority product requirements, and achieving these priorities requires a strong partnership between banks and their corporate customers.

Fixing the Plumbing

As companies have implemented efficiencies in the physical supply chain, the next logical step is to integrate the financial supply chain using ‘just-in-time’ (JIT) concepts learned from manufacturing and supply chain management (SCM). JIT payment processing maximises use of company cash and lowers operational costs, with corporate-to-bank connectivity being a vital component.

Achieving fully streamlined integration of payments and cash reporting between accounts payable (A/P) and accounts receivable (A/R) or treasury applications and banking systems has been a priority for some time yet continues to be a challenge. Many formats have come and gone – after all, how many versions of EDI X12 and EDIFACT are there?). However, there is one new development that seems set to raise the bar in terms of solution offerings. Although SWIFT connectivity for corporate payments and cash reporting has been available for some years, the implementation was still typically based on specific bank formats, or their interpretation of a ‘standard’. This continues to cause challenges for treasury as it is complex, inefficient and costly to manage.

To break this pattern, one of SWIFT’s largest corporate members, Microsoft global treasury, several of its key banking partners, and SWIFT have agreed and implemented a standard implementation of XML-based ISO 20022. The same format and syntax will be used by each of these global banks for cash reporting and, in the near future, for payments. As additional treasuries see the benefits of managing multi-bank integration in this way, it is anticipated that more banks will start to add this offering to their product suites.

But fixing the integration issue, or ‘plumbing’, is just one part of the challenge. Another is understanding just what exactly is going on within payment operations across the different formats and applications.

Transaction Insight

To add real value to the financial supply chain, banks need act as the logistics providers of the payments world. As the gatekeeper to the payments flow, the payer’s bank has the opportunity to collect, analyse, and distribute payment information and provide the value-added services requested by clients. Financial supply chain modernisation demands innovation in payment products, channels, integrated workflows, customer service and business intelligence.

As corporate-to-bank payment system integration becomes more streamlined, this creates a foundation from which to build a more consistent view of payment operations and flows. The concept of shipment tracking across a global logistics network applies similarly to the world of transaction banking. Just as in physical supply chain management and the movement of freight, international payments and reporting transaction flows are complex and somewhat unpredictable (from the treasury perspective).

Routing rules are complex and are based on currency and correspondent rules maintained by banks. Treasury has little direct influence on how a payment reaches its destination. To take the shipping analogy a bit further, there can be many ‘ports of call’ in a cross-currency, cross-border payment as it is fed through SWIFT and local clearing systems. To manage cash effectively, treasuries therefore need to know where it is in as close to real time as possible (given the challenges of a distributed value chain).

From the bank side, corporate client requirements for better visibility into payment processing causes challenges, particularly when you look at the myriad of internal process and systems, some of which are batch while others are real time. But as we move toward lower latencies in payments processing, the requirement for real-time analytics and business intelligence becomes more acute. Operations managers need to know about the state of payment operations regardless of client, payment type, and payment delivery channel or settlement method. This is particularly so when corporate clients are becoming better educated about the payments process, and have higher expectations about the level of service demanded from their banks.

Achieving this requires a business intelligence (BI) solution that transcends operational and technology silos and enhances the value of integration beyond mere ‘plumbing’. Before banks are able to address the client need for transaction updates, they absolutely must understand what is going on in their own operations. Hearing about a problem from a client before the bank is aware of the problem is not a good recipe for client satisfaction.

Extracting Value

Bank operations staff and corporate customers both benefit from transaction-based BI. The strategy of any BI initiative is to measure the past, monitor the present and predict the future. All this can be achieved by identifying and implementing appropriate key performance indicators (KPI) to reap benefits for the bank and the client.

For example, most bank operations have a variety of payment systems with individual reporting capabilities. Banking regulations, payment screening and liquidity requirements have operations managers demanding a level of insight not easily found from legacy batch processing environments.

Enterprise BI can deliver information about the volume and value of transactions regardless of payment type, source, currency or country. In terms of processing quality, KPIs include the percentage of returns and repairs of payments, the charges relating to them, missed payments and the compensation required as a result. All of this has value when repackaged and delivered to the corporate client.

Such visibility is also an important management tool for renegotiating cash management contracts. These are typically based in part on agreed service levels, with strict metrics around straight-through processing (STP) and payments completed on time. Payments BI allows both the bank and the treasurer to track this constantly during the contract period.

BI also provides invaluable customer service and investigation tools. For example, how many service inquiries are open by customer, and what are the aging statistics and average time to resolution? Again, this can be broken down to processing centres. Another data slice could show the STP rate across processing centres.

Using today’s BI tools, bank product managers will gain additional insights into product profitability, customer payment profiles and trends, thereby helping predict the value of new product features and the subsequent adoption rates. They gain the ability to model the effect of changing features or transaction volumes.


Although coming from different ends of the payments value chain, banks and corporate treasuries are both consumers of payments information. They have the same basic need: reliable and timely insight into payments processing to mitigate risk and improve operations. Achieving streamlined integration and the addition of enterprise BI can lead to an intelligent view of payments.

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