FX Review

How Banking Technology Makes Business Payments Easier and Efficient

As corporates grow, they may need to rethink their approach to payments. Standardized file formats offer significant advantages over manual online banking payments while Application Programming Interfaces (APIs) have the potential to transform bank connectivity.

Technology is an integral part of all of our lives today; many of us cannot imagine how we lived without our smartphones. For treasury, the pace of change has been somewhat slower, especially for mid-market companies. However, an increasing number of corporates are becoming more open-minded about innovation. One key area of focus is the efficiency (or otherwise) of payments.


Companies and Banking Payments

Unsurprisingly, most companies start by making payments manually through their online banking portal. For a small company making just a few payments each day, this process is relatively easy and quick — beneficiary details can be stored for reuse, for example. But as a company grows and payment volumes increase, which can occur exponentially in the tech sector for instance, manual payments can rapidly become inefficient and impractical.

What If My Company Works With Multiple Banks?

This is especially the case for companies that work with more than one bank. Each online banking portal has different procedures for logging on, uploading transactions or looking up account statements and real-time balances. It can also be difficult to integrate payment details into the company’s enterprise resource planning (ERP) system for reconciliation purposes.

Once payment volumes reach a higher level, therefore, companies usually move on to using pre-formatted templates. These enable treasury staff to use existing information and simply change the value date or amount for each transaction. They are much more convenient but still require significant manual effort.

As payment volumes rise further, companies often consider using bulk payments using file formats such as Comma Separated Values (CSV). These are uploaded directly from a company’s Treasury Management System (TMS) or ERP system to a bank via host-to-host connectivity. This process is significantly more efficient than manual payments via online banking or pre-formatted templates. Unfortunately, however, file formats vary by country and even among banks; consequently, manual intervention is still required to manage file formats.

One solution to this challenge is the standardized file format XML ISO 20022, which has been developed to enable easy electronic data exchange between financial institutions. Although ISO 20022 was developed as a standardized file format, banks have interpreted it in different ways in their systems. As a result, corporates deciding to use the file format need their lead bank to arrange a harmonization meeting to guarantee easy communication among their various banks.

APIs and Banking

Each of the steps described above delivers incremental benefits over those that precede it — they offer an evolutionary approach that may align with a company’s growth and increase in payment volumes. However, relatively new technology — in the form of APIs — can enable corporates to leapfrog these evolutionary stages and achieve streamlined connectivity with their banks in a short timeframe.

What is an API?

APIs are a way to enable two different systems to interact seamlessly. These small packets of code are used to connect different applications or platforms and underpin almost all modern software — Uber, Netflix, Airbnb and almost every app on a smartphone depend on them.

The Benefits of APIs and Banking

APIs improve flexibility because companies do not have to adapt their systems to accommodate bank requirements. They also accelerate implementation: corporates and their bank still need to agree on various standards but this can be done in a sandbox environment, in which the company simply configures the API for their own system based on a repository of functionality curated by the bank. And because they provide a tailored, direct connection between a corporate and its bank, they effectively give companies the benefits of their bank’s capabilities within their own TMS or ERP systems.

APIs also better reflect the way that many companies are now doing business. As commerce moves to a 24/7 business environment, companies increasingly want the ability to make instant payments to customers. Bulk payment files might make sense in a world of procure-to-pay cycles of 30, 60 or 90 days but in the gig economy, for example, suppliers and workers expect to be paid immediately when a good or service has been delivered.

By giving clients access to the payment functionality they want, when they want it, APIs can improve treasury productivity and deliver significant cost and efficiency benefits. Treasury staff can simply click a button in their ERP to make a payment, freeing up treasury time that was previously spent navigating online banking portals for more value-added activities.

Companies eager to take advantage of this payment revolution — or wanting to advance at a more sedate pace along the payments evolutionary continuum — need to ensure their bank is making the necessary investment in innovation. Corporates should choose to work with a bank that is promoting standardization and interacting with all relevant regulators, organizations and companies and has a proven track record is delivering advances in bank connectivity.

Shemley Gordon

Shemley Gordon
Citi Commercial Bank Head of Treasury Sales for Global & National Industries