Efficient treasury processes via bank networking and system integration

In an increasingly globalised and digitalised economy, optimised financial processes are a decisive competitive advantage. Increasing bank networking and system integration play a key role in enabling companies to have more efficient, secure and transparent cash and treasury processes. They not only create the basis for optimised management of financial flows, but also pave the way for innovations such as the use of artificial intelligence (AI)¹ and the integration of modern cloud technologies.

Traditional bank connectivity focusses on technical integration with individual banks, while the term bank networking describes a more comprehensive approach. Bank connectivity creates a dynamic network that enables real-time communication, data exchange and maximum transparency. By utilising modern technologies such as APIs and host-to-host connections, companies are able to access bank data in real time, initiate payments efficiently and continuously monitor the status of transactions. This shift from isolated connectivity to holistic networking encompasses not only the technical connection, but all interactions and relationships with different banks - regardless of geographical or technological barriers. The real-time transparency of bank networking is a decisive advantage for precise liquidity management and effective risk management. This makes bank networking an indispensable foundation for modern treasury management and long-term business success.

This step towards bank networking is being driven forward by the use of standardised communication protocols, which enable efficient and secure integration of banks and financial systems.

SWIFT gpi (Global Payments Innovation)² and the host-to-host connections have proved particularly successful for companies with international business relationships. The SWIFT gpi network offers fast, secure and transparent cross-border payments. SWIFT gpi enables real-time tracking of transactions, minimises uncertainties and strengthens business relationships through faster payment processing. In addition, the standardised data structure of SWIFT gpi reduces the effort required for integration into internal systems and ensures higher data quality. Nevertheless, SWIFT gpi has limitations, as there are still deviations in field assignments and formats in practice, which makes complete interoperability between banks more difficult.

For companies operating primarily in Europe, EBICS (Electronic Banking Internet Communication Standard) offers a flexible and secure solution. This standard is particularly suitable for medium-sized companies and facilitates the processing of payments and the retrieval of account statements in a standardised format. EBICS is not only cost-effective, but also easy to integrate into existing system landscapes, allowing automation potential to be fully utilised. In addition, European banking groups also offer access to non-European countries via EBICS. The consolidated collection of account statements for all subsidiaries of a European company via EBICS is just one example.

The host-to-host bank connection is a particularly efficient solution for companies with the aim of connecting local and unknown banks. This enables a direct, bilateral connection between companies and banks, allowing payment transactions to take place without intermediary networks such as SWIFT. This is particularly advantageous for connecting local banks with specific requirements or limited SWIFT usage. In addition to being highly customisable to individual company needs, such as the exchange of individually agreed file formats (e.g. regulatory forms as attachments to approved payments in PDF format), the host-to-host connection offers extensive security options, such as the use of various encryption protocols. In combination with seamless integration into existing ERP systems, the host-to-host connection is a good solution for customised payment transactions.

Companies that want to connect banks via API (Application Programming Interface) face major challenges due to inconsistent API standards. Each bank uses its own API formats, which significantly increases the development effort and complexity of maintenance. This fragmentation leads to resource commitment, complicated updates and the risk of data silos that can hinder the flow of information. With the enforcement of the Payment Services Directive, PSD3³, standardised API formats could emerge to facilitate bank integration. Nevertheless, companies should consider leaving this task to specialised TMS providers, as resistance from banks and the associated delay in standardised solutions will continue to keep the cost of in-house developments high. One example of how fintechs can be pioneers here is Year End Balance Confirmations, which some are already successfully offering via API. Such solutions show that specialised providers can often react faster and better to market requirements thanks to their focus on efficiency and standardisation. PSD3 and the Payment Services Regulation (PSR) could provide guidance in the long term, but caution is advised until then.

For companies, there is currently no alternative to SWIFT, EBICS or Host-to-Host (H2H) for payment processing and bank statement processing. These standards offer the necessary stability, security and integration for global financial processes. Specialised solutions supplement individual areas, but cannot currently replace the comprehensive functionality and reliability of these systems.

The integration of treasury management systems (TMS) and enterprise resource planning systems (ERP) creates a centralised platform for financial management. Automation is a key benefit that results from system integration.

By synchronising data between different systems, manual processes such as account reconciliation, liquidity forecasts or payment monitoring can be automated. This not only saves time and costs, but also reduces sources of error. Employees can concentrate on strategic tasks, while standardised workflows increase efficiency.

The standardisation of data plays a central role here, especially in accounting. Standardised data formats enable efficient processing and integration of financial information, allowing companies to process the large number of transactions and documents that need to be processed on a daily basis faster and with fewer errors. Standardisation also facilitates the consistency and quality of financial reports and analyses, as it forms the basis for reliable data aggregation. In accounting in particular, it enables seamless integration and harmonisation between different departments, software solutions and banking systems. This leads to a considerable reduction in manual intervention and an improvement in process quality. As a result, standardisation not only speeds up the entire accounting process, but also makes it more transparent and less prone to errors.

With the decision of the European Payment Council (EPC132-08) in 2023⁴, the integration of the SWIFT Universally Unique Identifier (UUI) in the SEPA payment format is possible. This allows the provision of a consistent reference for payment transactions, even when processing via EBICS. The UUI enables each transaction to be uniquely identified and ensures that all parties involved use the same reference point, which significantly improves 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

In addition, the SWIFT Universal End-to-End Transaction Reference (UETR) offers similar benefits. UETRs allow banks to 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, as they all use the same end-to-end reference. This reduces errors, avoids conflicts and saves time and costs in payment reconciliation.

In addition, the European Payments Council (EPC) has published a SEPA rulebook for the Verification Of Payee (VOP) scheme, which supports payment service providers (PSPs) in recipient verification. This scheme enables the real-time verification of IBAN and recipient names or alternative identifiers such as VAT or LEI numbers. The results of the check are forwarded directly to the payer.⁶

Standardisation also offers considerable advantages for payment gateways⁷. Various payment flows, such as bank transfers, credit card payments or SEPA transactions, can be bundled in a central platform. This increases efficiency, reduces complexity and minimises the risk of payment errors.

Treasury can benefit in many ways from the integration of artificial intelligence (AI) into a company's financial processes, leading to a significant increase in efficiency, security and improved decision-making. By using AI, companies can automate and optimise their financial processes without having to rely on specialised solutions. Below are some of the key benefits of AI integration into financial systems that are particularly relevant to treasury:

1. More precise analysis and forecasting:
   AI enables large volumes of financial data to be analysed in real time, allowing companies to make informed forecasts for liquidity planning and risk management. One example is the use of AI to predict market changes and identify potential liquidity shortages. To do this, AI can bring together financial data from different areas of the company to enable precise forecasts and cash flow analyses⁸ that support the entire company in its strategic planning.
2. Automated fraud detection:
   AI-powered fraud detection is already being used in the banking and finance sector to analyse transaction data in real time and identify suspicious patterns. However, corporates often lack such integrated solutions in TMS or ERP systems, relegating them to manual processes or external tools. However, with an integrated approach, similar solutions could monitor all transactions within the organisation, increasing security. The development of standardised, integrated fraud detection solutions is a crucial step in enabling corporates to achieve a similar level of security as banks.
3. Optimisation of payment processes:
   AI algorithms can analyse 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 optimisation for all payments, regardless of whether they are internal payments or payments to international suppliers, saving time and costs. In addition, AI in an ERP system could help to better manage payment terms and cash flow strategies by making automatic payment decisions based on the available data.KI kann den effizientesten Zahlungszeitpunkt und -weg berechnen, was entscheidend für die Steuerung des Working Capitals ist. Beispielsweise könnte KI-unterstützte Software Unternehmen dabei helfen, den optimalen Zeitpunkt für die Begleichung von Verbindlichkeiten zu ermitteln, um Skonti zu nutzen, ohne die eigene Liquidität zu gefährden. Mit einem ERP-System integriert könnten KI-Modelle Zahlungsläufe so steuern, dass sowohl Liquidität als auch Kosten optimiert werden, indem beispielsweise dynamische Diskontierungsmodelle bei Lieferantenbeziehungen integriert werden.

Overall, AI integration helps to make standardised financial systems fit for the future by raising efficiency, security and strategic planning options to a new level. It creates clear added value for companies that have to assert themselves in an increasingly data-driven and globally networked environment.

Despite the many advantages, bank networking and system integration also bring challenges. Especially for companies with a decentralised IT landscape, multiple heterogeneous interfaces create complexities. Different IT communication protocols and standards make integration more difficult and increase maintenance costs.

Another problem arises from the increasing use of cloud systems. Companies often work with different cloud services that cannot always be seamlessly integrated with each other. This leads to fragmentation and increases the effort required for data management and security. This is also where SAP's clean core strategy⁹ comes into play as one of the largest providers of ERP systems in Europe. This approach focusses on the development of 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 for the simple integration of new modules and functions. However, this poses 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 the interfaces and a high degree of customisability, which means additional effort in implementation and maintenance.

Possible solutions here include the standardisation of interfaces through protocols and the use of modern middleware platforms that can connect heterogeneous systems.

The standardisation of data and the automation of processes also create the basis for the use of AI, which makes financial processes smarter and more secure. At the same time, companies must meet the challenges of integrating heterogeneous interfaces and cloud systems in order to avoid fragmentation and utilise the full potential of modern technologies.

Of particular note is the central role of data standardisation in financial processes, which is becoming even more important in accounting and in financial processing as a whole. Standardised data not only enables improved collaboration between different internal departments, but also seamless integration of external banking systems, which leads to a significant reduction in manual intervention and an increase in process quality. This is the basis for efficient automation and the successful use of AI in financial processing.

Companies that rely on an integrated and standardised system landscape at an early stage not only benefit from more efficient processes, but also create the basis for future innovations. The future of financial processes lies in the networking, automation and intelligent use of data - and in the ability to successfully realise this potential in an increasingly hybrid IT landscape. The integration of the clean core approach poses 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, Issue 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

____________________________________________________________________________________________________________

1 Cf.: Potentials, challenges and limits in the use of AI - KPMG Germany

2 Cf.: Swift GPI | Swift

3 Cf.: Payment services - European Commission

4 Cf.: European Payments Council: Customer-to-PSP Implementation Guidelines: EPC132-08 as PDF

5 Cf: What is a Unique End-to-end Transaction Reference (UETR)? | Swift

6 Cf.: Verification Of Payee Scheme Rulebook | European Payments Council

7 Cf. What payment gateways really bring - KPMG Germany

8 Cf.: Cash forecasting with the support of AI - KPMG Germany

9 Link to SAP's Clean Core approach: RISE with SAP | ERP Clean Core Strategy