RiskCredit RiskSimplifying Payments for Enhanced Risk Management

Simplifying Payments for Enhanced Risk Management

The global volume of non-cash payments continues to grow. According to the 2011 Capgemini, the Royal Bank of Scotland (RBS) and Efma ‘World Payments Report’, the volume increased by 5% in 2009 to 260 billion items and the industry eagerly awaited the release of the 2012 report earlier this month to see the new numbers. In the meantime, the 2011 edition suggests that payment volumes accelerated further in 2010 and grew by more than 7% from the previous year. Although the US and Europe remain the largest markets by volume, much of the growth appears to be fueled by an increase in cross-border and domestic trade, especially in emerging markets and the mature countries of the Asia-Pacific region.

At the same time, we also see increasing uncertainly in the world. Questions remain about the eurozone debt crisis, the US economy still shows weakness, and experts are divided on how the Chinese economy will fare in 2013. Add to this the continued political tensions in the Middle East, and it is easy to see the challenges of doing business in the global economy faced by today’s corporate treasurers.

Visibility and insight into the financial supply chain have become higher priorities. Without knowing up-to-date details about cash positions, payment obligations or the financial health of global trading partners, it is very difficult to proactively manage the treasury function. 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. The more a treasury can simplify this, the more effectively it can be managed.

Simplifying Payment Flows

Simplification of payment flows means the streamlining of transactions within an organisation, as well as externally to trading and banking partners. These efficiencies can be broken down into two categories:

  • Reducing the number of physical connectivity points between a corporate treasury and its banking partners.
  • Adoption of industry standard message formats (SMFs) for payments and cash reporting.

Achieving fully streamlined integration of payments and cash reporting between accounts payable (A/P) and receivable (A/R) or treasury applications and corresponding banking systems has been a priority for some time. But it continues to be a challenge despite the development of standards such as the Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT) and EDI X12 over several decades. Proprietary formats are also pervasive, especially in the mid-market corporate segment.

Corporate-to-bank connectivity requires a partnership. A ‘software handshake’ between the two organisations is required for transactions to flow reliably. When two partners collaborate, a tight integration can be developed, but wider adoption becomes challenging. As a consequence, the development and adoption of standards and efficiencies for the industry as a whole are unlikely to come when only one side is defining them. So how can the handshake be scaled for multilateral benefit? When major global treasuries, the leading transaction banks and a market infrastructure like SWIFT work together to define the standards, the whole industry can benefit.

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 the 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 is used by each of these global banks for cash reporting and for payments. This was developed by the Corporate Global Implementation (CGI) working group which brings together banks, treasuries and SWIFT to define a universal standard. 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. This is likely to be a hot topic at the Sibos 2012 event in Osaka.

Simplifying the workflow and integration allows for operational cost removal. Multiple legacy host-to-host infrastructures between a treasury and its banks can be replaced by a single connection to SWIFT. The error handling of transactions and troubleshooting of any problems are also simplified when all transactions are mapped through the same XML data structure.

Simplifying Decision Making

As corporate-to-bank (C2B) payment system integration becomes more streamlined, it creates a foundation from which to build a more consistent view of payment operations and flows.  As payment systems move toward lower latencies in payments processing, the requirement for real-time analytics and business intelligence (BI) becomes more acute. Treasurers need to know the status of cash and payments if they are to react and manage risk in today’s volatile global business environment. Treasurers need to know how they might be impacted by more than regular fluctuations of exchange and interest rates. What about political unrest or a devastating earthquake? How might those affect cash reserves in certain countries, or the vulnerability of trading partners?

Achieving this requires a BI solution that transcends operational and technology silos and enhances the value of integration beyond data flows. 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.

Such a BI solution requires several components:

  • A data management platform that can consume a variety of feeds from internal and external systems, live streaming data and unstructured data from the cloud.
  • An analytics component that turns raw data into information about the business.
  • Self-service provisioning that enables unique data visualisations, based on the role of the user and collaboration, to securely share and disseminate the results to others.


Operational efficiency should be viewed as more than a cost savings exercise. Although that factor is vitally important, treasurers should also look at the broader opportunity that transaction streamlining enables. When payment flows and cash reporting are simplified, it is easier to gain an insightful view of operations and cash. This aids business efficency, oversight and risk reporting. A better view of operations, combined with geopolitical and economic risk factors, enables enhanced decision making  and risk mitigation. The ability to execute on those decisions is further improved when transaction workflows are simplified.


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