Configuring Payment Hub Software to Optimize Its Value
Payment hubs can improve the treasury team’s efficiency and visibility into payments activity. But achieving these objectives requires careful attention to configuration.
Over the past decade, the payments sector has undergone a notable surge in complexity and fragmentation. Rising payment volumes, tougher customer demands, and evolving market standards have exacerbated the pressure on corporate treasury organizations, particularly those that rely on antiquated legacy systems and tools that function in isolation.
As a result, many corporate treasuries and financial institutions are finding that their legacy systems are fragmented and disparate—and increasingly time-consuming and cumbersome to maintain. Companies can streamline payment processes by deploying a payment hub that centralizes disparate payment activities within a single, holistic platform that is customizable to the individual organization’s needs and requirements. (See Figure 1, below.)
Companies considering consolidating functions under a payment hub should carefully balance the hub’s short- and long-term goals alongside the functionality of their legacy systems, ensuring both are considered simultaneously. And organizations that roll out new technologies must think about deployment in terms of a journey based on a long-term strategy, rather than implementing scattered solutions and quick fixes. The long-term, big-picture approach comes with added effort up front, but it can bring enormous value and benefits to the organization.
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Managing Change Through a Hub
One of the key benefits of deploying a payment hub is its ability to facilitate organizational change. Incorporating an acquisition into corporate accounts payable (A/P), or bringing in new payment source systems, is simpler when it involves establishing connectivity only to the centralized hub.
Without a payment hub, every new source system must integrate into the corporate technology infrastructure in its own way, connecting to treasury, finance, and other solutions one by one, either through files whose formats need adapting or via application programming interfaces (APIs). And then, every time a change arises—such as an upgrade or software update—all the systems must be adapted, so all the one-to-one integrations must take place once again.
However, with a hub, companies can develop multiple communications channels within the hub, rather than relying on siloed, one-off solutions bolted on by various teams. The resulting system is significantly more robust than a set of extemporaneous tools would be, and is much easier to manage. When connected solutions are changed, their connection to the payment hub might require attention, but that one update will enable ongoing communication with all the other systems that tie into the hub, rather than necessitating rebuilding the one-to-one integrations again.
The payment hub can be seen as a matrix of all corporate payment systems because of its ability to create a centralized platform that links to both source systems and banks. To optimize the hub’s settings and configurations, the treasury team needs to ask: What is the optimal path to create maximum volume?
On the side of the hub that connects to source systems—such as cash management processes—the various benefits spin out from having all the applications connected and going through one central place. The number of connected systems may increase incrementally over time. However, the goal for any organization configuring and setting up a hub should be to connect as many applications as possible.
On the banking side, companies must focus first on connecting to their core cash management banks, starting with an understanding of which source systems each bank can serve. In most organizations worldwide, 90 percent of cash volume is sent to one of around a dozen banks, which are located across the United States and Canada, Europe and the UK, and the Asia-Pacific (APAC) region. However, in specific geographic regions with a low transaction volume, low total transaction value, and local source system, the configuration priority for treasury teams should be for the hub to connect to local banks, rather than the larger global ones.
It’s important to remember that if a company has a source system connected to the hub, but does not also have a connection to the bank that the source system requires, it has done only half of the work. The payment hub is useless to this source system at this stage. Organizations must work out how to optimize both sides of the hub—the side that connects to all types of payments from different sources, and the other side that connects to all types of banks—to reap the system’s benefits.
Creating a centralized payment hub is especially beneficial for companies working through frequent periods of change, whether they are spinning off businesses, reorganizing, expanding into new geographies, or engaging in mergers and acquisitions. Adaptability is pivotal for onboarding new businesses and banking providers effectively. And a payment hub builds adaptability by enabling connectivity to many internal systems with a single integration—to the hub itself. Once connected to the payment hub, an absorbed organization can have all its source systems supported quickly and easily, regardless of which messaging formats it uses—whether IBM MQ, SFTP, API, or a different file base.
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Settings to Move Beyond Manual Payment Processing
Another benefit of deploying a payment hub is its ability to provide visibility, control, standardization, and automation of payments for companies.
Companies that use manual payments processing, without adequate visibility into payments activities, are vulnerable to multiple pitfalls. For instance, the increased likelihood of data entry and routing errors can lead to incorrect payments or delayed transactions; significantly slower processing times, which delays payment execution; and a lack of transparency. Unaddressed, these pitfalls can make it difficult for businesses to monitor payments and identify discrepancies.
A payment hub can also help streamline messaging and banking connectivity. The most innovative platforms support the latest multiformat and multichannel enterprise resource planning (ERP), settlement, and bank statement messaging standards, as well as offering end-to-end bank connectivity. What is particularly beneficial here is the relationship between the hub and the banks. Having one hub that supports multiple bank-connectivity and messaging formats decouples the payment source systems’ message formats and connectivity (source systems to hub) from the hub’s message formats and connectivity to the banks (hub to banks), completely streamlining payment communications.
Companies shopping for payment hub software should make sure that the solutions they shortlist are compliant with all the messaging formats—such as SWIFT or new banking APIs—that work best with their partner banks. Not only do organizations need to select a hub with the technical capability to integrate and connect to both bank and source systems, but they also need to be able to move any messaging format to and from both sides of the hub, from source systems to the hub and then from the hub to the banks.
Aside from improvements in operational efficiencies, reduced costs, and shared global payment information, implementing a payment hub can also transform workflows. Many legacy payment systems lack built-in validation, settlement tracking, and payment anomaly detection functionality, resulting in time- and labor-intensive processes. A payment hub can provide functionality that helps reduce errors and ensure compliance.
For example, automated alerts can notify users of upload errors, and workflow notifications can boost efficiencies and decrease response times. Validations can trigger automatic value date updates where the cutoff is missed, resulting in improved settlement times and increased straight-through processing. Companies deploying a payment hub should pay close attention to the configuration of these alerts, to be sure that users will be immediately aware of any issues with transactions so that they can remedy them as soon as possible. Part of this configuration includes setting up predefined rules to help detect and alert on errors or anomalies automatically. Organizations can set these rules up themselves based on trends they have identified, but when doing so, they need to keep in mind that the rules should be created to cover both internal and external fraud prevention.
Organizations should also carefully design the workflows within a new payment hub. Rules-based workflows in areas such as payment suspension, anomaly detection, and sanctions screening can enhance payment protections through robust controls and risk mitigation. At the same time, though, companies must make sure their payment hub workflows have the flexibility to integrate with existing workflows in upstream source systems.
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Meeting Regulatory Requirements
A payment hub can help organizations adhere to and support new and upcoming standards, such as the SWIFT cross-border payments and reporting plus (CBPR+), because its centralized connectivity enables companies to cut down on workarounds and eliminate manual processes that may not adhere to regulatory requirements or industry standards. However, achieving these benefits requires the company to ensure that settings within the payment hub are set appropriately.
This is relevant with ISO 20022, a common platform that supports the inclusion of richer, better-structured transaction data in payment messages. In 2015, the ISO 20022 financial information standard appeared through the Common Global Implementation (CGI) Initiative, yet ISO 20022’s adoption is still only partial, as legacy SWIFT ISO 150022 and domestic formats continue to be used. More than a messaging project, an ISO 20022 migration will enable organizations to streamline processes and maintain better, richer data.
Companies that want to reap these benefits need to configure their payment hub or other payment platform to have the correct data structure and a format that supports this messaging standard on both sides. The real value in ISO 20022 is that payment messages include better-structured and more robust address and remittance data. This allows for richer workflows when the hub talks to banks and when the banks provide feedback and statuses. The payment hub needs to be configured to support these detailed communications with banks. On the other side, where the hub is receiving data from source systems, it also needs to be configured to receive all the messaging details supported by ISO 20022 so that the data can pass through the hub and be rehashed to the banks.
More payment networks will incorporate the ISO 20022 standard, following its adoption by the European Central Bank’s real-time gross settlement (RTGS) system TARGET2 and SWIFT’s CBPR+ guidelines. The CBPR+ implementation end date of November 2025 means that the transition to ISO 20022 will be gradual, dragging companies to an enriched version of the CGI initiative along the way. This initiative aims to simplify various payments related to corporate-to-bank implementations by promoting the wider acceptance of ISO 20022. To prepare for these new standards, organizations should consider implementing a payment hub that can handle all the appropriate transaction types while connecting to all the requisite source systems.
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Utilizing the Payment Hub to Evolve the Treasury Function
The treasury team plays a crucial role in managing a company’s financial assets, liquidity, and risk. As the business landscape evolves, driven by changes in technology and regulatory environments, treasury teams must evolve to meet new challenges and harness the opportunities they present. The treasury function requires clear visibility into payments, cash, and liquidity. By adopting greater automation and building system interoperability across processes, treasury teams can improve operational efficiency and the ability to execute on organizational objectives.
A properly configured payment hub will support this change, equipping CFOs and treasurers to do more with less. But getting the configuration of the hub right is paramount. Both sides that connect to the hub—source systems and banks—need to be treated with equal importance. Both require connectivity; a payment hub with links to one but not the other is a dead end. Creating automated, straight-through connectivity throughout the payment hub environment is how a company can optimize the benefits of this technology.
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