The financial landscape is changing. Instant payment schemes are reaching maturity and treasuries are adopting new technologies at an accelerating pace. Here’s why 2019 is the ideal time for treasuries to review their payment factory setup.
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Over the last decade, the payment factory has become a crucial tool for treasurers. It streamlines all of the payment and collection flows within your organisation through a central hub—so you no longer have to rely on disparate processes at the business unit or subsidiary level.
But now, the payments landscape is changing. This is driving a renewed sense of urgency for treasuries to review the setup of their existing payment factories. By optimising these processes in 2019, you’ll be in a better position to take advantage of real-time payments, capitalise on new technologies and make significant cost savings. We spoke to Tino Kam, Head of Payments, Liquidity Management and Corporate Channels at Nordea, to learn more.
The shift towards real-time payments
The last few years have seen the payments landscape undergo fundamental changes. The Single Euro Payments Area (SEPA) Instant Credit Transfer scheme came into force in late 2017, heralding a new era of finance. Payments can now be made across European country borders in less than 10 seconds, and the service is available 24/7. While there’s an initial payment limit of 15,000 euros per transaction, this is due to be reviewed next month—it’s likely that real-time, high value transfers aren’t far off.
As instant payments become a reality, this should motivate treasurers to find better ways of tracking and tracing the real-time movement of funds. SEPA can provide much greater opportunities for liquidity optimisation—but treasuries must be able to process, send and receive payments around the clock and have full visibility of these cycles. This is all easier to achieve through a centralised hub.
“As SEPA reaches maturity, it’s becoming a key driver for treasuries to adopt payments factories. And if they already have one, it’s motivating them to update their processes and explore more sophisticated setups,” says Kam. “SEPA can be viewed as a stepping-stone to more effective and standardised cash management.”
Treasuries are seeking to reduce costs
In 2019, many treasuries are likely to be under increasing pressure to identify areas for cost reductions. “With the market volatility of recent years and uncertainty surrounding events like Brexit, we expect to see many treasuries embracing the opportunity to save costs through centralisation over the next year,” explains Kam. “A payment factory can significantly improve the corporate treasury’s internal efficiencies. It takes labour intensive, repetitive processes and replaces them with centralised ones—saving on administrative costs and resources.”
It can also enable the treasury to access most of the group’s funds directly, while reducing the number of different bank accounts required. The resulting savings can be significant. “In 2017, one of our customers in Finland said that centralising their finance operations had produced yearly cost-savings of around 4-5 million euros, compared to their setup in 2011,” says Kam.
Technological change is accelerating
Treasuries are also working with increasingly sophisticated technology on a daily basis. Tools like automation and artificial intelligence (AI) could become indispensable in 2019. AI-driven algorithms can learn from previous behaviour and identify payment patterns—helping to identify early or late payers and improve cash forecasting predictions. And automating the treasury’s routine tasks can free up employees to focus on more strategic objectives.
This is further driving the need to review the setup of existing payment factories, especially long-standing ones. “Improving the centralisation of your payment flows gives you better overall visibility of your data. This can help you use technologies like AI and automation more effectively,” says Kam.
The strategic need for risk insights
A successful payment factory is about more than just efficiency and cost reduction. It’s also about risk reduction. “Improving your centralisation can help you minimise customer or supplier risks, currency risks and liquidity risks,” says Kam. “At any given time, you have a clear view of your cash position across different accounts and currencies.”
Importantly, a payment factory can also help the treasury offer strategic insights to the business—and that’s particularly important, as digitalisation will cause many traditional business models to be rethought in 2019. “The payment factory approach gives treasurers a single view of all payments, processes, suppliers and costs,” says Kam. “Not only does that help with cash forecasting, you can also identify new areas for efficiency and business growth.”
These strategic insights can be shared with the wider organisation, while the treasury’s routine tasks become increasingly automated. “The majority of treasuries expect to be more strategic players by 2025,” says Kam. “By upgrading their payment factory, treasuries can speed up and automate several core functions—freeing up employees to focus on less traditional tasks. This means they can invest more time in strategic decision-making.”
Finally, many corporates find that a payment factory is more scalable and flexible than traditional systems. When payment flows are decentralised, there can be clashes between different systems and infrastructure. And this becomes more complicated when mergers and acquisitions take place, or when the business enters a rapid growth phase. A payment factory—when properly optimised—gives treasuries the flexibility they need for the future.
It’s not one-size-fits-all
The benefits of reviewing your payment factory are clear. It can drive internal efficiencies, and improve cost savings and liquidity visibility—and with the move towards instant payments, 2019 is the perfect time to review your existing processes and technology. However, when it comes to implementation, every treasury is different.
Depending on the needs of your company, you might only centralise certain aspects of your payment processes. You might also choose to implement tools like a real-time treasury dashboard or virtual account management (VAM). Nordea already offers a range of solutions in this area and we’re currently developing more—contact us to discuss your requirements. Or stay tuned to our blog—we’ll be back soon with actionable recommendations for updating your payment factory.
Read more about Virtual Accounts
Read more about Payments and Collections
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