As the economy becomes increasingly globalized and digitalized, having streamlined financial processes is a key competitive advantage. In this context, increased bank connectivity and system integration play a key role in enabling companies to achieve more efficient, secure and transparent cash and treasury processes. They not only pave the way for an optimized approach to managing financial flows, but also for innovations such as the use of artificial intelligence (AI)1 and the integration of modern cloud technologies.
From bank connectivity to bank networking – transparency and efficiency in real time
Conventional bank connectivity focuses on the technical integration with individual banks, while the term bank networking describes a more comprehensive approach. Bank networking creates a dynamic network that permits real-time communication, data exchange and maximum transparency. Through the use of modern technologies such as APIs and host-to-host connections, companies can retrieve bank data in real time, initiate payments efficiently and continuously monitor the status of transactions. This shift from siloed connectivity to comprehensive networking extends beyond technical connectivity to include all interactions and relationships with different banks, regardless of geographical or technological barriers. This real-time transparency of bank networking is a vital advantage for precise liquidity management and effective risk management. This makes bank networking an essential component of modern treasury management and long-term business success.
This step towards bank networking is being accelerated by the use of standardized communication protocols that enable efficient and secure integration of banks and financial systems.
SWIFT gpi (Global Payments Innovation)2 and the host-to-host connections have proven particularly useful for companies with international business relationships. The SWIFT gpi network offers fast, secure and transparent cross-border payments. SWIFT gpi supports real-time tracking of transactions, minimizes uncertainties and strengthens business relationships through faster payment processing. On top of that, the standardized data structure of SWIFT gpi reduces the effort for integration into internal systems and ensures higher data quality. Even so, SWIFT gpi has limitations, as there are still deviations in field assignments and formats in practice, which makes complete interoperability between banks more difficult.
EBICS (Electronic Banking Internet Communication Standard) is a flexible and secure solution for companies operating primarily in Europe. It is particularly suitable for medium-sized companies and facilitates the processing of payments and the retrieval of account statements in a standardized format. EBICS is not only cost-effective, but also easy to integrate into existing system landscapes, making it perfect for fully exploiting automation potential. In addition, European banking groups also offer access to non-European countries via EBICS. Using EBICS to collect consolidated account statements for all subsidiaries of a European company is just one example.
Organizations aiming to connect local and unknown banks will find the host-to-host bank connection to be a particularly efficient solution. These provide a direct, bilateral connection between companies and banks, making payment transactions possible without intermediary networks such as SWIFT. This is ideal for connecting local banks with specific requirements or limited SWIFT usage.
Apart from being highly customizable to individual business needs, such as the exchange of individually agreed file formats (e.g. regulatory forms attached to approved payments in PDF format), the host-to-host connection offers extensive security options, such as the use of various encryption protocols. When combined with seamless integration into existing ERP systems, the host-to-host connection is an excellent solution for customized payment transactions.
For companies seeking to connect to banks via API (Application Programming Interface), there are major challenges due to inconsistent API standards. Each bank uses its own API formats, which significantly increases the development effort and complexity of maintenance. The resulting fragmentation leads to resource lock-in, complicated updates and the risk of data silos that can hinder the flow of information. Once the Payment Services Directive, PSD33, is enforced, standardized API formats could emerge that facilitate bank integration. That said, companies should consider leaving this task to specialized TMS providers, as resistance from banks and the associated delay in standardized solutions will mean that the cost of in-house developments remains high. One example of how fintechs are leading the way here is Year End Balance Confirmations, which some are already successfully offering via API. These solutions show that specialized providers can often react faster and better to market requirements thanks to their focus on efficiency and standardization. In the long run, PSD3 and the Payment Services Regulation (PSR) could serve as a guide, but caution is advised until then.
As it stands, companies have no alternative to SWIFT, EBICS or host-to-host (H2H) yet for payment processing and account statement processing. These standards provide the necessary stability, security and integration for global financial processes. Dedicated solutions complement these systems in individual areas, but cannot yet replace their comprehensive functionality and reliability.
System integration: centralization, automation and standardization
Integrating treasury management systems (TMS) and enterprise resource planning systems (ERP) creates a central platform for financial management. One of the key benefits of such system integration is the potential for automation.
Synchronizing data between different systems allows manual processes such as account reconciliation, liquidity forecasting and payment monitoring to be automated. This not only saves time and money, but also reduces the potential for errors. Employees can focus on strategic tasks, while standardized workflows increase efficiency.
Central to this is data standardization, especially in accounting. Uniform data formats pave the way for the efficient processing and integration of financial information, enabling companies to process the multitude of transactions and documents that need to be processed every day faster and with fewer errors. As it forms the basis for reliable data aggregation, standardization also improves the consistency and quality of financial reports and analyses. In accounting in particular, this enables seamless integration and coordination between different departments, software solutions and banking systems. This results in significantly fewer manual interventions and improved process quality. Not only does standardization accelerate the entire accounting process, it also makes it more transparent and less prone to errors.
The decision of the European Payment Council (EPC132-08) in 20234 allows for the integration of the SWIFT Universally Unique Identifier (UUI) in the SEPA payment format. With this, payment transactions can be provided with a consistent reference, even when processed via EBICS. The UUI provides a unique identifier for each transaction and ensures that all parties use the same reference point, greatly improving transparency and traceability throughout the entire payment process. The UUI is particularly valuable for seamless and error-free communication between banks and companies, as it reduces errors and makes payment processing more efficient.5
On top of that, SWIFT Universal End-to-End Transaction Reference (UETR) offers similar benefits. UETRs let banks track payments in real time, regardless of the complexity or number of parties involved. They eliminate the need for a chain of references between the banks involved, since all of them use the same end-to-end reference. This reduces errors, avoids conflicts and saves time and costs in payment reconciliation.
Additionally, the European Payments Council (EPC) has published a SEPA rulebook for the Verification Of Payee (VOP) scheme, which supports payment service providers (PSPs) in verifying recipients. VOP enables real-time verification of IBAN and beneficiary name or alternative identifiers such as VAT or LEI numbers. Verification results are immediately forwarded to the payer.
Payment gateways6 also benefit considerably from standardization. Various payment flows, such as bank transfers, credit card payments or SEPA transactions, can be bundled in a central platform. Doing so increases efficiency, reduces complexity and minimizes the risk of payment errors.
Benefits of AI integration for corporate treasury
Treasury can benefit in many ways from AI being integrated into a company's financial processes, leading to a significant increase in efficiency, security and improved decision-making. The use of AI lets companies automate and optimize their financial processes without having to rely on specialized solutions. Here are some of the key benefits of integrating AI into financial systems that are particularly relevant to treasury:
- More accurate analysis and forecasting:
Having the ability to analyze large amounts of financial data in real time, AI allows companies to make more informed forecasts for liquidity planning and risk management. One example is where AI is used to predict market changes and identify potential liquidity shortages. To do so, AI combines financial data from different corporate divisions to generate precise forecasts and cash flow analyses that support the entire company in its strategic planning. - Automated fraud detection:
AI-based fraud detection is already being used in the banking and finance sector to analyze transaction data in real time and identify suspicious patterns. However, corporates often lack such integrated solutions in their TMS or ERP systems, forcing them to rely on manual processes or external tools. But with an integrated approach, similar solutions could monitor all transactions within the organization, increasing security. Building standardized, integrated fraud detection solutions is a crucial step in enabling corporates to achieve a similar level of security as banks. - Optimization of payment processes:
AI algorithms are capable of analyzing various factors such as fees, processing times and exchange rates to calculate the most efficient payment method. This reduces costs and speeds up transactions. In an integrated approach, AI could perform this optimization for all payments, regardless of whether they are internal payments or payments to international suppliers, saving time and costs. In addition, AI running in an ERP system could help to better manage payment schedules and cash flow strategies by making automatic payment decisions based on available data.
AI can calculate the most efficient payment time and route, which is crucial for managing working capital. For instance, AI-augmented software could help companies to determine the optimal time to settle liabilities in order to take advantage of discounts without jeopardizing their own liquidity. When integrated with an ERP system, AI models could control payment runs in such a way that both liquidity and costs are optimized, for example by integrating dynamic discounting models for supplier relationships.
Overall, managing AI integration helps to future-proof standardized financial systems by taking efficiency, security and strategic planning capabilities to a new level. This creates clear added value for companies that have to compete in an increasingly data-driven and globally networked environment.
Challenges in bank networking and system integration
Despite the countless advantages, bank networking and system integration also come with their own challenges. Particularly for companies with a decentralized IT landscape, multiple disparate interfaces create complexities. Different IT communication protocols and standards make integration more difficult and increase maintenance costs.
Yet another problem arises from the increasing use of cloud systems. Organizations frequently use a variety of cloud services that cannot always be seamlessly integrated with one another. Not only does this lead to fragmentation, it also increases the effort required to manage data and security. This is where SAP's clean core strategy7 comes into play as one of the largest providers of ERP systems in Europe. This approach puts the focus on developing cloud-based systems that are as free as possible from customer-specific developments or third-party system extensions. In the future, the streamlined core should enable a flexible architecture as a basis for the simple integration of new modules and functions. This does, however, pose a challenge for TMS providers, as they need to connect existing non-SAP systems with these flexible cloud solutions without unnecessarily complicating the transition. The clean core approach requires precise coordination of interfaces and a high degree of adaptability, which means additional effort in implementation and maintenance.
Standardizing interfaces through protocols and using modern middleware platforms that can connect heterogeneous systems offer solutions here.
Conclusion: Integration as the basis for innovation
Optimizing cash and treasury processes through bank networking and system integration is a decisive step for companies looking to thrive in a dynamic and digitalized economy. Technologies such as SWIFT gpi and EBICS will improve efficiency, while the centralization of bank account and payment management will enable transparency and scalability.
Additionally, harmonized data and automated processes create the basis for the use of AI, which makes financial processes smarter and more secure. At the same time, companies must rise to the challenge of integrating heterogeneous interfaces and cloud systems in to avoid fragmentation and take full advantage of modern technologies.
The key role of data standardization in financial processes, which is becoming even more important in accounting and financial processing as a whole, is particularly noteworthy. Having standardized data not only improves collaboration between different internal departments, but also seamlessly integrates external banking systems, leading to a significant reduction in manual intervention and an increase in process quality. This is the bedrock for efficient automation and the successful use of AI in financial processing.
Companies that adopt an integrated and standardized system landscape from the outset not only benefit from more efficient processes, but also create the basis for future innovations. When it comes to financial processes, the future lies in networking, automation and the intelligent use of data - and in the ability to successfully realize this potential in an increasingly hybrid IT landscape. Incorporating the clean core approach creates a particular challenge for TMS providers, but also opens up new avenues for more flexible, adaptable and future-proof financial systems.
Source: KPMG Corporate Treasury News, Edition 150, December 2024
Authors:
Nils Bothe, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Nils Bentzien, Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
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1 see: Risk management in Treasury: opportunities, challenges and limitations when using AI
2 see: Swift GPI | Swift
3 see: Payment services - European Commission
4 see: European Payments Council: Customer-to-PSP Implementation Guidelines: EPC132-08 as a PDF
5 see: What is a Unique End-to-end Transaction Reference (UETR)? | Swift
6 see: Verification Of Payee Scheme Rulebook | European Payments Council
7 see: The true benefits of payment gateways
8 see: Ways to optimize cash forecasting with artificial intelligence (AI)
9 Link to SAP’s clean core approach: RISE with SAP | ERP clean core-strategy
Nils A. Bothe
Partner, Financial Services, Finance and Treasury Management
KPMG AG Wirtschaftsprüfungsgesellschaft