A Christmas wish for corporates: the multi-bank payment factory

Operating in today’s turbulent business environment, corporations face challenges on all fronts. In the face of fierce competition, increasing customer demands and intensifying pressure to grow the bottom line, they must strike a delicate balance between managing cash, liquidity and counterparty risk, while maintaining solid bank relationships and credit ratings. All these factors are accelerating the global move towards ‘multi-bank payment factories’ for corporates.

As they struggle to manage multi-payment, multi-channel, multi-currency and, frequently, cross-border payments it’s hardly surprising that corporates worldwide are moving towards the payment hub model, adopting fully-fledged, multi-bank payment factories, which centralise and automate all their payments needs.

This payments hub lies at the center of how corporates can tackle several key challenges, including optimising working capital, managing liquidity, counterparty and foreign exchange (FX) risk, and more. Within this model, financial messaging is the connectivity layer that transfers the payment message from the hub out to interbank services such as SWIFT. However, while financial messaging is a significant component of the value proposition for a corporate payment factory solution, it’s actually just one part of a much bigger story: the trend for corporates to seek a payments hub that can help them manage multiple payments, through multiple channels, involving multiple currencies in multiple geographies.

The ’multi-bank payment factory’ is a model that’s rapidly gaining momentum among corporates worldwide. It’s the ideal option for corporates looking to do three things: centralise their payments and/or collection processes, transmit financial messages more easily and efficiently, and gain deeper insight into liquidity, with the end goal of optimising working capital for the whole enterprise.

The last of these objectives reflects how forward-looking corporate treasurers are going well beyond their traditional role, and using surplus funds to actively generate revenues by making the firm’s capital work harder.

In line with these goals, corporates across all sectors are increasingly using payment factories to perform five key functions:

1. Message transformation: The transformation layer of the payment factory is tasked with taking disparate files from various enterprise resource planning (ERP) and/or treasury management system (TMS) “origination” platforms, then enriching and transforming them to ensure they have the appropriate information required, based on the type of payment and specific geographical information.
2. Workflow: The extent to which corporates use workflow capabilities in their payment factory solutions tends to vary widely. Some feel that workflow needs to be accomplished in their “origination” (ERP/TMS) platforms, while others apply the concept of “trusted” and “non-trusted” sources, and utilise workflow capabilities in their payment factory solution for the “non-trusted” sources only. Yet another option is adopted by those who choose to standardise all of their workflow within the payment hub to ensure global consistency.
3. Message routing/transport: Many utilise SWIFT (both the financial messaging services provider’s FIN and FileAct channels) as the transport and routing mechanism, and regard this as a key component of their payment factory. Some use in-house solutions to achieve this capability, while others utilise service bureaus offered by providers such as D+H. Where SWIFT is not feasible as a transport option, many corporates look to build host-to-host connectivity either in-house or through a service bureau.
4. OFAC/sanctions list filtering: While few corporates have actually yet put it into action, using the hub to carry out initial checking of their payments against an Office of Foreign Assets Control (OFAC) and other sanction lists is a step that’s on the radar of many organisations. Given heightened security risks, most are currently at the stage of looking for best practices on how to do this.
5. Accounting/reconciliation: While varied generally in practice, corporates typically choose to do the accounting and reconciliation for all transactions passing through the payment hub within the hub and then have these accounting entries sent to their general ledger (GL). The reconciliation of payments sent and payments ultimately received is also transacted through the payment hub.

The way forward for corporates in 2016

The multi-bank payment factory solution centralises and automates all the functions listed above in a flexible, cost-effective and proven environment.

Using a multi-bank payment factory, corporate treasurers can keep pace with increasingly complex transaction requirements while simultaneously enabling them to simplify and automate systems; increase straight-through-processing (STP); facilitate integration with ERP systems; improve security; manage risk; meet regulatory requirements; and enhance cash visibility. Forward-looking corporates are increasingly moving in this direction, while those that hold back risk being left behind by their more far-sighted competitors in 2016 and beyond.

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