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Accelerating Real-Time ERP Connectivity And Payments

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The interest in improved ERP Connectivity and Payments solutions has never been higher. As CFOs prepare for post-pandemic growth, their demands for efficiency and scalability easily explain Gartner’s projections of $516 Billion in enterprise software spending in 2021, increasing to $571 Billion in 2022.

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De-Risking ERP Payments Projects

Driven by the need for automation and improved financial controls in the face of fraud and other threats, CFOs and CIOs recognize the success of an ERP project or migration is directly related to integration and connectivity, including to support the critical delivery of corporate payments through the supply chain.

CIOs are already establishing project teams and securing solutions vendors who deliver quick wins with out of the box capabilities. Banking and payment connectivity is a frequent target for CIO teams seeking improved efficiencies because of the historical tendency for ERP-to-bank integrations to stall due to project management challenges, on-the-fly development, and extensive back and forth testing with banking partners. In fact, in a recent CIO Pulse survey, 91% of IT leaders agree that bank connectivity is one of the most complex aspects of an ERP project. CIOs and CFOs are searching for ways to de-risk ERP payments projects, starting with streamlining connectivity.

Establish Connectivity Priorities

Before searching for connectivity and payments solutions, CIOs must first understand if the bank connectivity landscape has changed since the initial ERP configuration. This is the case for both new ERP implementations and migrations from legacy ERP instances. They are likely to find that finance teams have evolved the number of banking relationships and scope of services they interface with over the past decade. This typically leads to a spider’s web of connectivity solutions, often with many overlapping pathways from ERP to bank. Preparing a simple matrix listing banks, banking services, connectivity protocols, and banking formats can kick-off the conversation about how much bank connectivity requirements have changed since the last time ERP payments connectivity was implemented.

The second priority is to understand new project requirements. Payments are different than they were even five years ago, when cost efficiency was the leading KPI. The risk of payment fraud is at an all-time high; external compliance screening such as ensuring your payees are not on government sanctions lists is necessary to streamline payments delivery to your counterparties; and heightened internal governance leading to more prescriptive payment policies have changed the payment journey from a simple transmission of files from ERP to bank – to a series of screening, monitoring, and compliance activities on top of sending payment files to banking partners. In addition, payments are faster now, with real-time payment rails, increased daily limits for low value payments, and increased transparency into payment handoffs globally. These are just a handful of new requirements that CIOs, with the support of their finance team partners, are learning about to properly map today’s payment journey within the ERP and then from ERP to bank.

The final priority is to determine if the existing bank connectors remain the best “how to connect” solution for payments transmission and receipt of acknowledgements. In almost every case, CIOs and their teams uncover obsolete solutions such as custom-built FTP connections, expensive SWIFT service bureaus, and aging bank file formats. While these may have been practical several years ago, modernized connectivity offers greater efficiency, drastically reduced costs and accelerated timelines in addition to opening platforms to new real-time APIs and comprehensive XML formats.

APIs: Pathway To Success

Banks’ adoption of APIs to open their platforms make ERP-to-bank integration projects faster and easier through the delivery of pre-programmed and pre-tested connectors. Project ‘phases’ are now turning into ‘validation steps’ because the interface between ERP and bank has been built and tested already – it is now a matter of implementation testing prior to production. This has helped expedite bank connectivity projects by months and years, slashing timelines and eliminating significant PMO time which the CIO can repurpose to other ERP projects.

APIs have also been a catalyst to offer new banking services to CFOs and their teams, including real-time payments (RTP). In fact, as banks open their platforms via API, many are only targeting RTP for the initial rollout – leaving traditional payments and bank reporting to be supported by current protocols such as FTP, SWIFT or regional networks like EBICS. The positive for CIOs is that the connectors to these services – even if operating alongside an API connector – are still pre-built and pre-tested.

In addition to RTP, new payments services also include SWIFT’s global payments initiative (GPI) and the ability to track the status of a cross-border payment in real-time; real-time bank statement reporting, and the addition of a B2C payment channels such as Zelle and Venmo (in the United States).

APIs: More Than Just Real-Time Connectivity

While modernizing previously file-based connections, APIs offer more than the benefit of real-time information exchange. APIs also allow integration of new services to the payment journey.

For those payment providers that also offer an open solution, extending their platforms via API has allowed developers, consultants, and other payment tech providers to offer a more compelling solution to the ERP.

The most prominent use case is to mitigate the threat of payments fraud. As Gartner has coined it, the AP audit is a necessary step for this decade’s CFOs to ensure the appropriate level of screening, monitoring, and controls is conducted for all payments so that only valid payments are transmitted and settled. This need has been accelerated by the advent of real-time payment services, which no longer offer multi-day settlement times and the opportunity to claw back a fraudulent or mistaken payment after the payment was sent.

Three categories of payments fraud mitigation have been introduced as part of CFOs internal governance procedures:

  • Bank account validation – connecting, in real-time, to cloud-managed databases to confirm that the bank accounts being credited to in the payment instructions belong to the counterparty finance teams believe they are paying. This is one important layer of protection in the fight against losing funds to Business Email Compromise (BEC) schemes and other phishing attempts. Without API connectors, this validation has never been a part of the ERP-to-bank payment journey.
  • Payment policy screening – every CFO has built a comprehensive payment policy, documenting the review, approval, and denial procedures for all the organization’s payment scenarios. These payment policies have multiplied in complexity, as new examples – and controls to manage them – are introduced, often in response to fraud exposures and attempts. The challenge for CFOs is screening every single payment that goes out the door against these payment policies. While CIOs can digitize the payment policy, the algorithms and data required to identify and quarantine suspicious payments as a relatively new addition to the payment journey that open API platforms are well positioned to support.
  • Irregular payment patterns – as fraud schemes grow increasingly sophisticated, involve fraudsters using artificial intelligence in their efforts to penetrate corporate defenses. CIOs can up their game by also incorporating machine learning algorithms into their payment audits. The machine learning program will screen every new payment against the payment history, identifying – and quarantining – suspicious payments for further review. While in prior decades this analysis would have been done manually, the speed and data requirements to fulfill this task today make automation a necessity.

The Future Is Automated, Analytical And Visual

Payments will continue to evolve, with prospective adoption of digital currencies, ‘blockchain’ distributed networks, and more business intelligent visual dashboards just around the corner for mainstream use. CFOs who have not fully collaborated with CIOs to perfect today’s payment journey are not well positioned for the future. Data volumes and demands for analyses are only increasing, with many finance teams embedding data scientists into their teams, emphasizing the need to react more quickly with larger cuts of data to drive insightful decision making.

Payments connectivity must be fully automated for the end-to-end payment journey, from the moment a payment leaves the ERP all the way through to receipt and acknowledgement by the bank. CFOs and CIOs are challenged to not only automate but also mitigate against fraud and reducing costs and timelines to implement this entire solution. It is a challenge that requires specialized services to complement good payments governance and processes.

Fortunately, APIs have opened the doors to more standardized bank and payments connectivity while securely opening payments platforms to additional services to make the payment journey from ERP to bank more secure, automated, and achieved at a lower total cost for CIOs.

About the Author

Bob Stark is a subject matter expert in treasury, payments, and risk management applications with extensive expertise in cloud solutions and security. Bob has provided technology consultation to help finance leaders at the world's leading organizations optimize financial outcomes with technology for more than 20 years. He is a frequent speaker at major global treasury conferences such as AFP, EuroFinance, ACT and others. Mr. Stark has a BBA in Finance and Marketing from Simon Fraser University.

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