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Treasury Technology

Fraud Helps Drive Payments Efficiency

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July 22, 2016

Payments standardization and centralization important but reducing risk is also driving change. 

Cyber crime smallCorporates have made significant progress in terms of standardizing payment processes and controls and centralizing them to make them more efficient. One of the drivers for that progress is reducing risk and fraud, which is far different than the traditional goal of lowering costs. That’s according the financial services technology provider FIS.

FIS’s recent “B2B Payments and Bank Connectivity 2016 Study: Reducing Complexity and Fraud While Taking Control of Your Payments” found that nearly 60% of respondents from 170 companies identified improving controls as a key driver for a payments project, with fraud close behind at 52%. Earlier B2B projects were primarily driven by cost reduction goals, but fewer than half of respondents said that was the main factor today.

Andrew Bateman, president of treasury software solutions at FIS, said the study supported the general trend of corporates adopting more standardized and centralized payments systems, but the emphasis on cyber concerns was a new element.

“It’s saying they’re an acceptance that cyber is something people really are thinking about,” Mr. Bateman said. A full 83% of respondents reported achieving some degree of centralization of payments. “But that last 15% to 20% can be very challenging to get to,” Mr. Bateman said, either because the banks are in remote countries, or the autonomy that exists in different parts of large organizations.”

The study notes that while more companies currently use bank systems as a part of a centralized payments infrastructure than bank-independent systems such as SWIFT and EBICS (27% vs. 18%), those percentages are set to reverse (EBICS is bank-neutral transmission protocol in Germany and France that companies and banks use to exchange financial messages with each other vs. SWIFT, which is global). Although solutions such as SWIFT are not appropriate for every company, they do allow finance managers switch or add banking partners more easily and manage their bank risk more effectively,” the study says.

“This is particularly timely given that some banks have chosen to exit certain markets recently to de-risk their business in a more challenging regulatory environment, and ongoing risk of bank failure in some highly volatile markets,” the study adds.
Another challenge to implement consistent payment processes, and controls and formats, is that companies, especially multinationals, work with numerous banks. Forty percent of respondents reported working with more than five banks, and a third of those worked with more than 20. In addition, more than half of respondents have more than 100 bank accounts, and 28% more than 1000, and collating and managing those accounts is resource intensive, the study says.

The study also found that there is increasing interest in pay-on-behalf-of (POBO), where an entity makes payments on behalf of other group entities via a single external account. A minority of respondents, 8%, has instituted POBO to date, but 19% reported intending to do so.

The study found that 54% of participating companies make payments to more than 1000 suppliers, and half those companies pay more than 5000 third parties, creating significant processing volume and complexity and resulting in control issues and the risk of cyber security and supplier fraud. Just under one third of respondents said they have long-term, strategic relationships with more than half of their suppliers and make regular payments to them. Around the same percentage reported strategic relationships with between 25% and 50% of suppliers.

“This suggests that there is a relatively high proportion of suppliers with which companies can negotiate the use of efficient, electronic payment methods, as opposed to manual methods such as checks,” the study says, adding strategic relationships with smaller or noninvestment-grade suppliers could enable the introduction of supply-chain finance programs and the additional liquidity and resilience they offer.

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