15
Dec 2016

The Payment Hub: Implementing Load Balanced Treasury

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A treasury is only as strong as the data that it runs on. Yet as globalization has increased and complexity and risk experienced by corporates has grown, treasury departments have remained lean. Without the personnel capacity for increased data gathering, new opportunities must be leveraged to increase richness and ensure the accuracy of available data. Co-opting the ideas and benefits of Load Balanced Treasury® and combining it with modern payment technology enables the creation of a banking hub, maximizing the potential of your payment data to support your treasury operations.

As the drive towards centralization has increased, we’ve seen corporate treasury departments gain greater clout, absorbing much of the work done at the subsidiary level, without an increase in staff. According to Strategic Treasurer’s 2016 Treasury Fraud & Controls Survey, nearly three-quarters of polled treasurers say their companies conduct business in more than one country, and over a third do so in 20+ countries. Despite this, over half of treasury teams are still under 6 people, and nearly three-quarters of treasury departments are either static or decreasing in size. In our webinar last month, our poll data showed that more than half of the people watching work with organizations that make between 10,000 and 100,000 payments per month, with 29% paying across 21+ countries. This makes payments one of the most complex components of the treasury toolbox.

Payments: formats and hypercomplexity

Not only are there currently enough networks and payment standards to blank out a map, but there are different regulatory requirements (EMIR, FATF), timing issues involving time zones, and more.  As companies grow on a global scale, they have to use more payment formats, more payment types. This creates complexities for treasury and for the organization itself.

Format conversion is the big issue, specifically the use of local payment instruments. Many banks support EDI and SWIFT, and they’ve been around so long that everything is set up accordingly. The problem is ISO20022 adoption, proprietary formats and making this all work with their legacy back end systems. This has created a situation where even ISO20022 scope has to account for bank-specific and country-specific deviations.

This same issue rears its head with reporting. Corporate systems use different ERPs or accounting systems, which also may require specific formats. Despite MT940/MT942 (most commonly used for previous day statements or current day account reporting) and BAI reporting having reached an acceptable level of standardization, in the grand scheme a large number of proprietary formats persists.

The crux comes with the growing technological expansion that’s happening. People are trying to build automated systems for reconciling information. These formats don’t always provide sufficient information in terms of categorization, or they have data truncation problems. It’s not easy to do this conversion. You need to be aware that there will always be a loss of information if you’re trying to go from, say MT101 to a local instrument in a specific country. This creates a scenario of hypercomplexity for treasurers.

Getting everyone on the same treasury management system

If you read our last post on Load Balanced Treasury, then you know that the LBT concept focuses on solving the problem of data aggregation and information processing. Too often, different offices manage their own affairs, their bank connectivity, their data gathering from financial institutions. That data then needs to be bundled up and sent to head office, which needs to extract it and enter it into the central planning spreadsheets of the organization. Even when you implement tools like a group-wide ERP, the real visibility is likely to be spread across separate e-banking platforms around the world, and this means many members may need their own in-house solutions or third party software. These aging, inflexible, and difficult to integrate systems often simply don’t address the central problems of data aggregation and information processing.

A Load Balanced Treasury leverages the work being done at an entity level, collecting local activity as real and accurate information for central treasury. By providing tools for them at a subsidiary level and using straight-through processing to pull that data into a central system, you get easier, more accurate data collection and aggregation. A centralized approach like this, where you see everything in one spot and encourage your subsidiaries to engage in the process, leads to increased compliance, streamlining of processes, and significantly less time spent collecting and transposing data. Load Balanced Treasury means visibility, easier forecasting, risk management, and auditability/compliance.

Load Balanced Treasury in action: The integrated banking hub

A banking hub is a system to help you process payments that may have come from multiple sources. It might take one format, convert it to a new format, handle validation and delivery (through SWIFT, through H2H or through EBICS). It allows you to aggregate payment requests, put them in the right formats, automate the delivery of that data.  The benefits of this are immense.

Visibility

This really sits at the heart of the Load Balanced Treasury concept, since it creates centralized visibility without centralized work. The banking hub lets your business units do their work in the TMS or a connected system, and provides overall visibility about what is happening.

Another benefit is that it lets you create things like centralized repositories for bank account management, payments, statements, etc. and it helps you automate cash position and provide more accurate group-wide forecasting, letting you make better funding decisions. This lets you do more with less, as you no longer have to devote the resources to collecting and processing information.

Operational benefits

A banking hub still allows local management of payment execution processes, but it also gives you central control over user rights and full control of entire payments and cash reporting cycles. This is a huge benefit. If you have full control over the user rights, you have much greater compliance. Even more, it can also help you manage multiple ERP payment systems and bank reporting formats and provide this information normalized and consolidated back to the ERP. This means less time entering data and more time making good decisions.

Economic benefits

Banks that are being added or connected immediately become available for all entities. This allows all business units to be included, and can quickly be rolled to the entire group. A banking hub can even serve as a volume aggregator, accumulating payments until a certain time, then delivering the payload later.  This reduces the cost of payment operations and helps eliminate the cost of maintenance/development of bank-ready formats in systems for country-specific instruments.

Risk management

Finally, a global banking hub helps fight fraud by analyzing data from multiple systems before processing. If we’re talking about data completion or enrichment, it makes it easier to assure that only approved sources are used - those connected to the banking hub.

Bringing treasury into the light

The global banking hub combines the concepts of Load Balanced Treasury with banking technology to support your treasury operations. Given that payment complexity is increasing but treasury remains thinly staffed, it is crucial that treasuries understand the organizational need for payments, and landscape of payment technologies. This will enable us to resolve the issues of payment hypercomplexity.

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