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Payment Processing and What You Need to Know about Payment Hub Providers

By Kyriba

Today’s payments landscape brings numerous challenges for multinational organizations. Payment hubs – often implemented in conjunction with an ERP cloud migration project – are a powerful tool that can help companies overcome these issues. So, what are the benefits of payment hubs? And what should you bear in mind when embarking on an implementation project?

Payment Challenges

The payments market is something of a moving target. Notable developments include the arrival of SWIFT gpi and the transition away from MT formats. In addition, with some banks looking to focus on high-value, low-volume payments, there’s considerable scope for new providers to expand into the low-value, high-volume space. For users of payment services, this changing landscape means there is much to consider – particularly when looking to upgrade or change existing outbound and inbound payments platforms.

While each company will have its own pain points, there are some common issues that affect the majority of companies around the world.

According to a poll of participants from a recent webinar by Kyriba and Deloitte, 60 percent of respondents named reducing the risk of fraud and cybercrime and having global visibility into payments as their top two concerns when it comes to payments. Other challenges included the arrival of new payment types such as real-time payments (25%) the migration to XML ISO 20022 formats (21%) and the prospect of the company’s ERP system migrating to the cloud (13%).

Payment Hubs as a Solution

When it comes to overcoming these challenges, two-thirds of the webinar participants said they planned to solve their payment challenges by integrating their treasury and ERP platforms. Another approach, cited by 35%, is the adoption of a payment hub or payment factory.

A payment hub is a structure that performs four main functions:

  • Workflow: A payment hub provides a workflow for payments initiated from different sources within the organization.
  • Security: It layers on workflows that support payment controls, such as real-time fraud detection and sanctions list screening.
  • Connectivity: A payment hub enables flexible payments through both bank and non-bank channels.
  • Format Transformation: Payments are automatically translated into the format required by individual banks.

With many companies taking a critical look at their payment strategies, payment hubs are increasingly being included within the scope of TMS and ERP implementation projects. Other companies, meanwhile, may embark on standalone payment hub projects.

Drivers for Adopting a Payment Hub

There are four main reasons why companies adopt this type of structure: the need to accelerate ERP cloud migration, reduce risk, gain transparency and visibility into payments or achieve scalability,

  1. Accelerate ERP Cloud Migration: When the company is undergoing an ERP cloud migration, a payment hub can speed up the implementation. It can also enable the organization to reduce or contain costs, both on the outbound side (by standardizing connections, file formats and message mapping) and on the inbound side (by centralizing the processes used to reconcile receivables with bank statements).
  2. Reduce Risk: The more systems you have in place – each with their own workflows, controls and connectivity – the more difficult it is to maintain standardized payment controls. A payment hub enables companies to funnel all their enterprise connectivity outbound payments through one centralized system, making it easier to combat fraud, facilitate audits, demonstrate the right controls, avoid the risk of duplicate payments and apply sanctions screening.
  3. Gain Transparency and Visibility: With all payments centralized in a single system, treasurers can have a clear view over upcoming payments, allowing them to identify opportunities for early payment discounts or to increase free cash flow. This is much harder to achieve if the company is using a variety of fragmented systems.
  4. Achieve Scalability. While a less prominent driver than the other three points, a payment hub also gives treasurers more negotiating power with banks because they are no longer constrained by the difficulties involved in switching platforms. CFOs, meanwhile, may value the faster time to market associated with a payment hub. For example, if the company is expanding its operations, a payment hub model can make it quicker and easier to adopt supplier payments in a new market.

How to Get Started

Like any implementation project, a payment hub implementation needs proper planning and preparation. Before getting started, treasurers can educate themselves about how best to address specific pain points by talking to banks, technology vendors, consultants and their peers.

When it comes to planning an implementation, it’s important to think about which problems you are trying to solve for and who within the organization needs to be involved in the project. Then, start informally engaging with stakeholders, not least to understand the timings of any other projects that might be in the pipeline.

Meanwhile, you can begin drafting a high-level scoping document to determine whether the project will be limited to treasury payments or if it will cover payments at an enterprise level. Other considerations include determining which banking partners will be involved, which countries will come within the scope of the project, what types of payments will be covered by the hub, and whether technology providers or consultants will need to be engaged.

Once the necessary partners have been selected, a more detailed plan can be built. Key considerations will include whether to go for a ‘big bang’ implementation or roll the project out in staggered phases. Either way, by approaching the implementation in a rigorous and structured way, companies will be best placed to build a payment hub that meets their particular needs.

To learn more, watch Kyriba and Deloitte’s recent webinar, ‘How Payment Hubs can Transform Companies’.