The Treasurers Have Spoken, Episode 2:
Survey Results on Payment Hubs and Treasury Aggregators
In this second episode in our series covering the 2022 Analyst Report, Craig Jeffery and Paul Galloway of Strategic Treasurer discuss key findings and implications of relevant survey data. This week, we are focusing on payment hubs and treasury aggregators.
Interested in hearing more? Download our Treasury Technology Analyst Report
Craig Jeffery, Strategic Treasurer
Paul Galloway, Strategic Treasurer
Episode Transcription - Episode #236 - The Treasurers Have Spoken, Episode 2: Survey Results on Payment Hubs and Treasury Aggregators
Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.
Paul Galloway 00:17
Welcome to the Treasury Update Podcast. I’m Paul Galloway, Senior Advisor, Strategic Treasurer. I’m joined today by Craig Jeffery, founder, managing partner of the firm. Craig, you know, we’d like to talk to you today about treasury aggregators and some of the findings from the latest technology analysts report. This is something that our listeners can find on our website at StrategicTreasurer.com, or in the show notes. With that, Craig, what are treasury aggregators?
Craig Jeffery 00:50
Thanks, that might be the hardest question you can come up with today. Treasury aggregators serve two key roles, two primary roles, and people have some different terms for these. So the first role is data consolidation or information consolidation. This is the process of pulling, for instance, bank information, balances, transactions, pulling that together, and then feeding that to other systems at the organization: a reconciliation platform, an ERP, a treasury management system, so they’ll make sure all of the connections that are necessary are handled, they’ll get the data in, scrub and do whatever functions are necessary, and then deliver it to any and every place that’s needed in the company. That’s the first part this information consolidation, the second is outbound. So it’s payment, it’s a payment hub functionality. So payment hub is the technology to choose to distribute payment instructions. Sometimes people use the term payment factory, we always use the more standard term for payment factory, which is the technology and group that handles payments, just stands for payment factory. But a payment hub is, you send payments in from various systems: your ERP, admin systems, could be payroll, it’ll handle the creation of those digital payment files, deliver it to the bank, and the management of the traffic back and forth. So the two elements of a treasury aggregator are inbound information consolidation and outbound payment hub function.
Paul Galloway 02:26
So Craig, when we think about treasury aggregators, and the payment functionality they have, what are some of the payment challenges that treasury departments are facing today? And how how does this help them?
Craig Jeffery 02:40
There are dozens of payment challenges. I’ll list some of the key ones here in this discussion. I mean, one is and you’re familiar with these, payment security is a big issue, fraud is on the rise. And the ability to protect our payment processes is completely taking over core activities and focus on the AP side, making sure payments are protected. That’s one element. Another element that’s related to that is complying with payment standards. So this might be sanctioned filtering, it might be some other in-country specifications. The other challenge is, there’s all kinds of new and exciting payment types, payment rails, different formats. And these are, these are different, they have different requirements. And so these new payment rails are being incorporated by companies. And so this is a challenge, you have to support more payment types, just like you go through the line at the grocery store, it used to be a paper bag, then it was paper or plastic, and then it’s paper, plastic, or bring your own container. There is this growing need to flex and support multiple payment types. The other factor, the last one that I’ll mention is that most companies grow in complexity, they are not only supporting more of these payment types that are new and emerging, they’re also entering more countries, they have more currencies to deal with. They’re touching more banks. And so this is just another area of complexity. So there’s quite a bit facing treasury facing accounts payable and any payment professional is probably facing this type of complexity that has to be has to be solved.
Paul Galloway 04:23
So Craig, you talked about, you know, one of the things that, you know, I find interesting in today’s environment is around the payment rails. That’s something where we haven’t had something new come by in some time. So these new payment rails are coming out there. You know, does that make payment hub solutions that much more important to treasury departments? And how does the treasury department know whether they actually need a payment hub?
Craig Jeffery 04:57
Well, if the first question is an easy one to answer. There is a growth of complexity around new payment rails and they have to be handled. The more complex your company is with regard to payments, and this can be because you acquired companies. You have 2, 3, 10, 50 different areas or systems that generate payments. Well, anytime let’s say if to support a new payment rail that may impact 5 systems or 15, you’ve got to do sanction filtering that may impact all of them. Now you have to have some other function. And you have to support that activity across every level of complexity. If you have one single system, in one country in one currency, delivering one payment type, it’s pretty simple. I would invite people on page 29 of the report. It’s a free download report. It shows some of the elements about a complexity calculator that that shows why people need to think about supporting payments and have to be consistent. So the more you have to do something, the more times you have to do something, the harder it is for a ccompany. When do you need a payment hub? There’s not a definitive point, I mean, it’s pretty easy to say you don’t need a payment hub, if you’re in that 1, 1, 1 situation, you deal with one bank, one payment type from one underlying system, that’s just, there’s going to be overhead, you’re going to use your accounting system or what have you. But the more complexity you have, the more payment types you’re supporting, the more you have to handle different types of return information or confirmation activity, the more difficult it is to handle that with your ERP, for example. You know, when your complexity factor gets up there and you become complex, you might use a payment, you might use a payment hub, you might use the treasure aggregator for payments, it gets highly complex or hypercomplex, the more that happens, the more you need to use the functionality of a payment hub.
Paul Galloway 07:00
Yeah, it seems like you know, today, there’s a lot of innovation out there in terms of payments, how payments are being disseminated and received, the systems out there to handle it. You heard people talk about, well, we talked about payment rails earlier. But you know, there’s cryptocurrency, you know, there’s decentralized centralized finance, functionality, continuing innovation in terms of what constitutes a payment with all these innervate innovations and the things that companies or organizations are bringing to light in terms of how they make transactions happen. What are the what are some of the bigger innovations that impact payment hubs today? What does that look like five plus years down the road?
Craig Jeffery 07:51
You know, it’s one thing to say you have a new payment rail. It’s another thing to say you are changing how companies are connecting to their banks, ultimately, to initiate payments or to receive information. So some of the innovations impacting payment hubs, I would say would be some of the new payment types offer a lot more functionality, better visibility, they can contain a better payload of information that supports your business process, this transparency into where a payment is, particularly an international payment, that relieves massive amounts of headaches. And so that’s a, that’s an innovation that impacts payments and makes them less makes them move towards the frictionless side of the equation. Those impact payment hubs to because people want and need that activity. Now, faster payments, there’s certainly a need for greater speed, sometimes there’s a need, there is a need for instant, or real time speed. But I think the key part there is that nothing with regard to payments is moving towards slower, everything’s moving faster at some level. So those are a couple, couple pieces. The other has to do with innovations in not only things like sanctioned filtering, but you know, applying community standards, the use of AI and machine learning to detect anomalous activity, which can be a quality control or a fraud protection device. So those are pretty significant developments. And certainly the use of APIs to stream the information across for initiating payments is having an impact because it’s a new type of connection. So we’ve gone from the weird file formats or the fixed length file formats to the Extensible Markup Language formats, the XML, which are which are rich and deep. And then, you know, we have methods of moving data. APIs, which are not really a file format, but they’re still a way of connecting and moving data, kind of all combined. They’re helping the development to mature nicely with with payment hubs. So those those are types of innovations that are impacting payment hubs for sure.
Paul Galloway 10:07
Craig, I really liked your comment about how payments are not moving to going slower. And I think about that this, there is a demand for more speed. You and I also think about there’s potentially down the road, the demand for not only more speed, but more availability to make payments at any given time during the day, any day of the week. So it really kind of changes the dynamics of what payments are today. And you look at the future, it becomes more complicated and security issues become more complicated. And technology has to be able to keep up with that. Really kind of an interesting topic. I think payments back in the day when I started in the arena was pretty plain vanilla and boring. You know, that was 30 years ago, nearly. So today, it’s much more dynamic. It’s an interesting topic, and what constitutes cash, what constitutes a payment, and when and where you can do it. Well, thanks, Craig. That was that was great conversation. Appreciate the time on the subject today.
Craig Jeffery 11:17
Yeah, my pleasure, Paul.
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The Treasurers Have Spoken: Survey Results on TMS, Payment Hubs, and the CCC
Craig Jeffery and Paul Galloway of Strategic Treasurer discuss the key findings and implications of recent survey data by Strategic Treasurer. They discuss the new advancements of APIs. Are they improving fast enough to keep up with market demands? They touch on the thought process involved in a Treasurer deciding on a payment hub, and the challenges treasury departments face in managing their cash conversion cycle.