Getting to Know the Animal of your Corporate FX Risk
This article is written by GPS Capital Markets Over history, people have developed systems for measuring time and keeping track of information. From cataloging the patterns in the night sky—like constellations—to creating educational anecdotes to pass on wisdom about life, love, or economics—like fables or parables—many of these metaphorical systems have featured animals. Like in Aesop’s fable “The Crow and the Pitcher,” when the bird puts pebbles in the pitcher, it raises the level of water until he can drink. The tale helps pass knowledge on about how to make steady progress working through problems. GPS approaches FX exposure analysis in the same methodical way. As we enter the Year of the Dragon, we can look at the categories of FX exposure and ways to approach hedging them by comparing them to the Chinese zodiac. Are you approaching your balance sheet exposure with the patience of an ox or the cunning of a snake? Are you ready to channel the luck of the dragon to push your company forward this year? Read through our list to learn more about knowing the animal of your corporate FX risk and taking inspiration from the positive qualities ascribed to it to respond to risks. The Pig: Transaction Exposure If the financial services industry had a mascot, a pig would be a great choice. With its long association with reliability, it’s no wonder kids learn to save using piggie banks. In the Chinese zodiac, people born in the year of the pig are good in business dealings. There’s even a story about a pig and chicken who want to start a business: The chicken says she will contribute her eggs and expects the pig to hand over the bacon. The pig in this story is the business partner with the most to lose and a life-and-death commitment to getting the business to succeed, whereas the chicken is a fair-weather partner who will likely cut and run when things get rough. Transaction exposure is the day-to-day risk associated with invoices and contracts. A pig-like approach to foreign exchange is what we at GPS Capital Markets provide. Each of a client’s risks is assessed, documented, and hedging strategies put in place to save and optimize practices over time, day by day, invoice by invoice. With the reporting and analytics capabilities of FXpert, regularity and dependability in your FX trading and hedging strategies improves steadily. The Rat: Translation Exposure One of the main types of FX exposure is Translation Exposure or Exchange Rate Exposure. This exposure takes place when financial statements (balance sheet, profit and loss) must be translated from a subsidiary’s local currency into the parent company’s currency. The consolidation necessary to assess the company’s accounts reflects the ethos of the Chinese zodiac rat. Rats, like squirrels and other rodents, scavenge, consolidate, and guard resources. Consolidation gives confidence to investors and board members. As the translation of funds occurs, it’s worth leaning into the positive aspects of the Chinese rat, being meticulous in accounting for exposure risk before it becomes a real problem on your balance sheet, and putting plans into place to mitigate losses as a result. Learn more about hedging. The Ox: Economic (or Operating) Exposure Every seasoned business owner has faced years when nothing seems to go right. Even when your books are balanced and the leadership is making good decision after good decision, larger market forces have flattened strong companies and entire economies. Economic exposure is the risk inherent in fluctuating currency markets on a broader scale. In terms of macroeconomics, there’s still ways to predict and model these dynamics; however, one of the most important ways to brace for variability in markets is to take the ox as inspiration. Oxen symbolize hard work. Whenever populations moved or tamed territory through history, oxen were present to pull carts and plows. To face wide exposure, you must be strong, independent, and supportive of the rest of your treasury team. Even when a client has thousands of pending invoices, at GPS we move forward like a stubborn ox until the client has a clean shop and fully functioning accounting practices in place. The Dragon: Mitigating Corporate FX Risk In February 2024, we ushered in the year of the dragon. An ancient symbol of China and associated with luck, the dragon also symbolizes powerful, energetic, and visionary leaders. When it comes to an overarching metaphor for corporate leadership tackling exposure risk, there’s no better image than the dragon. When you consider expanding into new markets, business leaders need a good measure of courage and luck to set up subsidiaries and deal with exposure as it arises. Another aspect of the dragon is that it’s a giver of abundance and longevity. At GPS, we provide the extra help treasury department and C Suite leaders need to grow their businesses across national boundaries and foster success far into the future. Because our individualized customer service is coupled with the leading FX rates and technology, we have long-term clients who trust us to help lead their companies forward with the spirit of the 2024 dragon. ALSO READ Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
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Introducing Article Sharing on Treasury Mastermind
How to Post your own article Here is a step-by-step guide on how to post your own article: Step 1: First, ensure you are a registered member and logged in, then click on the profile icon at the top right and a drop-down menu will appear. Step 2: When the drop-down menu comes up, click on “my blog” to be taken to where you can write an article Step 3: On the article edition page, put the title of your article on the “Post Title” section Step 4: Add the content of your article to the “Post Content” section. Step 5: Add a short excerpt to your article to highlight what your content talks about (although this is optional) Step 6: Upload an image you want to be associated with your article. Step 7: Check a category you feel your content is best associated with. Step 8: Click on the tags you want linked to your article (this step is also optional). Step 9: Finally, you can submit your content when you are done. Please note: All submissions are subject to admin approval to make sure they conform to forum rules. So, there you have it. Do not miss out on the opportunity to share articles that might be useful to other treasurers.Go to the forum to share your article at any time.
Treasury Technology Trends in 2024: How APIs, AI, and RPA Change the Treasury Landscape?
This article is written by Nomentia Treasury technology trends are developing at a rapid pace and like in other industries, the names of new emerging technologies are popping up here and there. It’s only natural, though. For the last decade, we have been talking about digital transformation and Treasury has truly embraced the idea of digitalizing and automating processes. Still today, the evolution of treasury continues. If someone wasn’t convinced about digitalization five years ago, they’re now witnessing development occurring at an accelerated pace. Treasury teams are now evaluating which processes require improvement. While some companies are just starting to implement treasury management systems to improve their ways of working, others are always frontrunners in adapting exciting new technologies, and they are paving the way for others. While working with clients, we often come across treasury teams that are ready to provide us with new ideas to develop our solution further, so they could be among the first to implement something new that would benefit them but also benefit the rest of the treasury community. A while back, our clients helped us develop a rule-based fraud detection engine to catch anomalies in outgoing payments, while today, we hear from clients that some of them are developing business cases for using AI in cash flow forecasting. But before going through the trending technologies like APIs, RPA, or AI, we’ll take a look at how treasury management systems have developed over the years and where they are today. Treasury today: moving from on-premise solutions to the cloud One of the most significant developments of the last decade has been that solution providers have started to move from providing on-premise solutions to hosting everything on cloud platforms (like Microsoft Azure or AWS), offering their services as software-as-a-service. The change has been massive: it meant that solutions could be taken into use much more rapidly than before with less support from IT, the solutions were more secure and highly available, and monthly updates and major releases were available for all users once published. Cloud-based TMS solutions have enabled treasury teams to build their roadmaps differently As vendors have started to offer cloud-based treasury management software, treasury teams have more opportunities: they could plan the treasury roadmap using a best-of-breed approach. The best-of-breed approach means that it’s possible to implement solutions at one’s own pace or even take solutions from several vendors. Earlier, a company could have implemented the best TMS on the market, yet the TMS could have lacked certain functionalities that they needed. With a modular approach, it’s still common that the Treasury team implements a robust TMS, but at the same time, the team could find a solution from another vendor that would have better possibilities and functionalities and could be integrated with the TMS, ERP, and banks to ensure that the processes work seamlessly. This has been a huge step forward, as Treasury teams could start selecting the solutions that best fit their challenges and needs, instead of settling for a single solution that may not fully satisfy all their requirements. Integration, bank connectivity, and process automation are essential in treasury Integrations have also played an important role in how Treasury teams have developed their technology stack. Building integrations between different cash and treasury system solutions has become the new norm. Perhaps, still, the biggest priority is setting up the integration with the primary and secondary ERP systems, as the reliance on real-time information is even more important when multiple solutions are relying on accurate data. Bank connectivity is also a solution that treasury teams are seeking, especially when the business is starting to grow. One can manage one or two connections internally, but the moment treasury needs to handle global operations, investing in a bank connectivity solution is a must. Now, after we have gone through the basics that have been shaping the Treasury of today, it’s time to look at the technologies that could shape the Treasury in the upcoming decade. Treasury Technology Trends that are shaping the future of Treasury APIs, AI, RPA, ML, Blockchain, Big Data, Data Analytics… you have been hearing these terms all over the internet in different contexts. Consultants and analysts are pushing these topics daily as the next big thing. These are the Treasury technology trends shaping the future of treasury and we’ll take a look at how API, RPA, and AI could be shaping how you work daily in treasury and finance. APIs will change how we connect systems APIs (application programming interfaces) are a set of definitions and protocols for integrating software solutions. With the help of APIs, the products you are using can communicate with each other. Usually, developers implement APIs to ensure they offer simplicity in connection, flexibility, and thus serve as an excellent starting point for innovation – whether you aim to automate processes or access real-time information from a specific source. Perhaps one of the biggest use cases is to connect different treasury and financial software using APIs. Modern SaaS solutions usually offer built-in API connections and the faster you can connect your technology stack, the faster you will be able to automate different tasks or obtain data from various sources. Banks have been investing heavily in API development over the years and most banks offer Premium APIs for treasury and finance teams to facilitate automation between your banks and your financial systems. We recommend that you familiarize yourself with the different offerings of your banks to know what’s possible with APIs and how you could utilize them in your daily work. Robotic Process Automation (RPA) could be the answer to repetitive tasks Robotic process automation (RPA) is a technology solution that relies on using robots or “bots” to automate simple, repetitive, or rule-based business processes. The tasks are often manual, time-consuming, and error-prone. The robots are mimicking human interactions with software, systems, or applications, and they perform tasks such as data entry, data extraction, calculations, or other similar routine operations. RPA relies on pre-defined workflows, data manipulations, and solution-making decisions based…
Optimizing Liquidity Amidst Rising Interest Rates: A 2024 Outlook
This article is written by Cobase After the complexities faced in 2023, the financial landscape presents both challenges and opportunities for businesses aiming to optimize their liquidity in the face of fluctuating interest rates. Reflecting on the events of 2023, it becomes clear that understanding market trends and preparing for the future have never been more crucial. This blog post offers insights into the current economic environment and strategic recommendations for liquidity management in these dynamic times. Reflecting on 2023: Setting the Stage for 2024 The year 2023 was a rollercoaster for global economies, marked by continued recovery efforts from pandemic-related disruptions, geopolitical tensions, and varying responses from central banks worldwide. These factors contributed to an environment of uncertainty, with interest rates experiencing significant adjustments as part of broader efforts to control inflation and stimulate economic growth. 2024 Economic Outlook: The Interest Rate Conundrum Looking ahead, the consensus among financial analysts for 2024 suggests a continuation of the trend towards rising interest rates. This forecast is predicated on ongoing efforts by central banks to manage inflation without stifling economic recovery. For businesses, this means a landscape where the cost of borrowing could increase, impacting strategies for managing cash reserves and investments. Strategic Approaches to Optimizing Liquidity Navigating the Future with Informed Decisions The ability to adapt and respond to changing market conditions will be key to navigating 2024 successfully. Businesses that prioritize flexibility in their financial strategies, leverage technology for better decision-making, and stay informed about market trends will be better positioned to manage liquidity effectively in an environment of rising interest rates. Conclusion The outlook for 2024 presents a nuanced picture of challenges and opportunities for businesses focused on optimizing their liquidity. By adopting a strategic approach that includes dynamic cash management, technological investment, and a keen understanding of market trends, companies can navigate the uncertainties of rising interest rates with confidence. The journey through 2024 will require vigilance, adaptability, and informed decision-making to leverage opportunities for growth and stability in the ever-evolving financial landscape. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
10 Things You Need to Know about APIs for Treasury
This article is written by kyriba APIs for treasury continue to be one of the most talked-about technologies as finance leaders look to make their treasury and payments operations more real-time and responsive to market volatility. APIs are critical to the future of bank connectivity, yet they offer significantly more value than connecting treasury systems and ERPs to banks. In a recent webinar, Celent’s Head of Banking and Payments, Patricia Hines, and Kyriba’s Global Head of Marketing Strategy, Bob Stark, explored how APIs are transforming the ways corporate finance teams access and use data. They discussed the many benefits of API adoption, including connectivity, reporting and analysis, accelerated payments, and more. 1. On-Demand, Real-Time Connectivity APIs, or Application Programming Interfaces, are sets of protocols and tools that allow different software applications to communicate with each other. They enable different systems, including banks, ERPs, payment networks, treasury management systems, data lakes, data warehouses, and other internal and external systems, to connect and exchange information on-demand and in real-time. APIs seamlessly embed this data within various workflows across treasury and finance, enabling a complete enterprise picture of cash and liquidity. 2. Up-to-Date Reporting and Analysis Real-time data connected and unified from multiple streams means the most up-to-date information is available for reporting and analysis. APIs can feed into reporting that delivers comprehensive, instant visibility into where your cash is and what actions you need to take. By enabling seamless communication beyond ERP-bank-API connectivity, APIs offer many benefits for reporting and analysis, including: 3. AI and Data Science Because APIs unify and connect data in real-time, they provide clean, solid data and also allow organizations to access more detailed data. APIs help create a data platform, or a “single source of truth,” setting the table for the use of AI and empowering organizations to make data-driven, informed decisions. As Bob emphasized, “You don’t have an AI strategy without a data strategy, and you don’t have a data strategy in treasury without APIs.” The uniform, enterprise-wide data delivered by APIs allows organizations to leverage other capabilities for automation, predictability and analytics. 4. Automatic Translation of File Formats With many different types of formats for bank reporting and payments, format transformation can be challenging, time-consuming and costly. Many banks also have their own file formats and their own communications protocols, presenting challenges for technical on-boarding. Additionally, banks may limit file format options (e.g., BAI or EDI), and the various channels for interaction (host-to-host, SWIFT, domestic networks) add complexity. Further complicating matters is the SWIFT MT to MX migration and the adoption of ISO 20022. By automatically converting formats for seamless communication between disparate systems, APIs help solve the challenge of translating the multiple bank reporting and payment formats used to exchange payment instructions and reporting information. Source: Celent (Copyright © 2023, Celent, part of Oliver Wyman) 5. Accelerated, Secure Payments API technology is revamping how companies manage their payment journey by enabling machine-speed transactions, efficiently and securely. Beyond delivering automated format transformation and streamlined connectivity, APIs enable automatic checks of payments before they are sent to banks. APIs facilitate standardized payment controls, such as digital signatures, additional levels of approval, single sign on (SSO) and audit trails. Additionally, APIs improve payment governance with real-time fraud detection, sanctions list screening, bank account verification and digital policy compliance. Any suspicious activity or detail within a payment instruction means the payment is instantly quarantined, ensuring security and comfort that the right payments are being transmitted to banks. 6. Streamlined Corporate Processes APIs enable improved business outcomes. They can streamline processes, delivery, and intelligence for cash and liquidity management, investing, borrowing, foreign exchange, accounting, supply chain finance and payments. APIs provide the opportunity to re-explore existing processes, encouraging corporates to ask: What can we do with richer information? With faster information? How can we better present information for ourselves and our colleagues? What do we want to do differently and better than we are doing today? 7. Easy to Adopt Instead of creating custom integrations for each bank and payment provider, developers can leverage existing APIs, saving time and resources. API development and implementation is now easier than ever with API marketplaces where the hard work has already been done. Many banks and technology partners offer API marketplaces with pre-built, pre-developed and pre-tested APIs. Organizations can leverage these pre-built solutions to decrease implementation time from months to days. For example, with Kyriba’s API gateway, clients can seamlessly connect via Kyriba to over 1,000 global banks, supported by an extensive format library of 50,000 pre-developed and pre-tested payment scenarios. 8. Avoid the Rip-and-Replace Approach APIs augment, complement and improve–but do not necessarily replace–existing systems. Choosing API solutions doesn’t require a complete overhaul of existing systems. Businesses can integrate API functionalities like real-time reporting and instant payments alongside their current ERP systems without disrupting established workflows. The goal is not a massive rip-and-replace project, but rather the opportunity to enhance existing treasury operations with more on-demand capabilities, facilitating real-time decision-making. 9. Flexibility to View Real-Time Data Whenever, Wherever APIs offer the flexibility to access real-time data from treasury systems and other sources. Combined data from different streams can be fed instantly for viewing in your treasury management system, your ERP, your desktop or your phone. You can consume data where you want and how you want, on-demand and in real-time. 10. How to Get Started with APIs Taking the first step toward adopting APIs involves engaging with your banking partners. While it might seem like a daunting discussion, approaching it as a conversation about connectivity–and exploring the possibilities APIs can deliver beyond ERP-bank-API connectivity–can be insightful. Many forward-thinking banks treat APIs as a product, offering support and sales assistance. Understanding the potential outcomes and benefits before entering the conversation is crucial: APIs offer the opportunity to accelerate and enhance your business processes. Collaborating with your banking partners, ensuring alignment with your technology stack and envisioning the improvements you seek will help you successfully navigate your API journey. Also Read Join our…
Understanding Currency Exposure: 7 Essential Terms you should Know
This article is written by GPS Capital Markets Imagine you are part of the finance department of an artisan chocolate producer in the UK. Renowned for its premium products, and your small to medium-sized enterprise (SME). Then you decide to import macadamia nuts from Hawaii to bring an great flair to its product offering. The idea sounds intriguing. But as you delve into the specifics of doing business internationally, the challenges with foreign currency exposure come to play. When engaging in international trade, treasury departments play a critical role in safeguarding an organization from risk. So, where should you begin? A solid understanding of key terms related to currency exposure is an excellent starting point. This knowledge will guide you as you make informed decisions for your company. We have compiled a list of top fundamental currency exposure terms and their definitions. Defining Foreign Currency Exposure Exposure to foreign exchange risk involves the potential for financial loss due to frequent changes in foreign exchange rates. These fluctuations can negatively impact transactions made in a foreign currency rather than in the company’s domestic currency. The concern for a company is that fluctuations in foreign currency rates could influence its future cash flows. This is due to the unstable nature of foreign exchange rates. It’s not only companies that engage directly in transactions denominated in foreign currencies that are at risk of foreign exposure. Firms with indirect connections to foreign currencies also face this risk. Products imported from China can affect an Indian company competing with them. This is if the value of the Chinese yuan drops against the Indian rupee. This can grant importers a cost advantage over the Indian company. This shows how shifts in foreign currency values can impact companies. Even if they do not engage in direct foreign exchange dealings. Foreign Exchange (FX) Hedging Foreign exchange hedging is a strategy used by corporations to protect themselves from the risks. These risks are associated with fluctuations in exchange rates. By locking in exchange rates for future transactions through contracts like forwards, options, swaps, or futures, companies can ensure financial predictability. This can also reduce exposure to adverse currency movements. Let’s say our UK chocolate producer expects to pay his Hawaiian supplier $100,000 in 6 months, it can enter into a forward contract to buy $100,000 at a fixed rate today. If the US dollar (USD) strengthens against the euro (EUR) by the payment date, the company is shielded from the increased cost. Because it is already locked in a more favorable exchange rate. This practice is crucial for budgeting, forecasting, and protecting profit margins in international business operations. To learn more about hedging instruments, explore the article, “6 Benefits of Incorporating FX Hedging Solutions.” Derivatives The term derivative refers to financial instruments whose value is derived from an underlying asset, like stock, bond, or currency. In the currency market, these instruments allow corporate treasurers to hedge against foreign exchange risk. This will ensure that currency fluctuations do not adversely affect the company’s finances. Common types include forwards, options, futures, and swaps. Types of Derivatives Currency Forward Contracts A currency forward contract is a binding agreement between two parties to exchange a specific amount of one currency for another at a predetermined exchange rate on a specified future date. For example, the treasurer of a US company that expects to pay a European supplier €1 million in three months for goods imported from Europe, may choose to hedge against the risk of the euro appreciating against the dollar by using a forward contract to lock in today’s EUR/USD exchange rate for the transaction. By doing so, the company knows exactly how much it will pay in USD, regardless of future exchange rate fluctuations, aiding with its financial planning. Also Read Currency Swaps Imagine you are a Canadian company, needing Japanese yen (JPY) for an invoice due to a Japanese supplier in six months, but currently holding Canadian dollars (CAD). After locking into a forward contract, you determine that the supplier is going to be late delivering the product by 30 days. You can enter an FX swap by exchanging CAD based on the current spot rate and agree to extend the transaction by 30 days prior to the contract expiring. This swap allows you to hedge against the risk of JPY appreciating against the CAD over the next three months, while also giving you the flexibility to change the payment date, ensuring you know the exact cost of your future payment. Currency swaps involve two simultaneous transactions: exchanging a specified amount of one currency for another at a spot rate and reversing the exchange rate at a predetermined future date and rate. This tool helps in hedging against exposure to currency fluctuations and securing short-term funding in a different currency without impacting the balance sheet. Currency Options A currency option, also known as an FX option, is a financial instrument that gives the holder the right, but not the obligation to buy or sell money denominated in one currency into another currency at a pre-agreed exchange rate, or strike price, within a specified period. For instance, an Australian company that expects to pay $1 million in New Zealand dollars NZD in six months for goods from New Zealand, is concerned the Australian dollar (AUD) might weaken against the New Zealand dollar (NZD), increasing costs. The treasurer may buy an FX option to lock in a current exchange rate of 1.10 AUD/NZD for $500,000 NZD. If in six months, the AUD/NZD rate worsens to 1.20, the company can exercise the option, saving money by paying at the locked-in rate. If the AUD strengthens, say to 1.05, they can let the option expire, paying at the better market rate, with the option’s premium as the only cost for this price protection. Currency Futures Contracts FX futures contracts entail standardized agreements to buy or sell a currency at a predetermined price on a specified future date These contracts specify the currency amount, exchange rate, and settlement date. As all contract…
Excel for the Modern Corporate Treasury
This article is written by Automation Boutique Excel has been a trusted tool for treasury and finance professionals for decades. Most of the treasurers we speak to today still indicate that Excel is a vital tool in their treasury operations. It is widely used for key processes, like cash flow forecasting, cash management, risk management and reporting. While Excel is familiar and extremely flexible, improvements to existing Excel-based processes are urgently needed to also make it a successful tool for the coming years. The good news is that Excel contains many hidden gems that allow you to develop models that are automated, robust, and easily auditable. The popular narrative has been to transition away from Excel in corporate treasury, mainly due to its potential for errors and the complexities of managing large files. At first glance, this is understandable, because most Excel-based processes have significant problems: But here’s the thing: a lot of treasurers (even those who are using a Treasury Management System (TMS)) still use Excel for important tasks. Why do they do this? First, a lot of treasurers have found out that there isn’t a single TMS that does everything they need. So, they still need Excel for some tasks. Second, some companies don’t have the budget or the need to buy a TMS. For them, Excel is the main tool they use for their treasury management. So, getting rid of Excel completely might not be the answer. Maybe there’s a better way to use Excel and still enjoy what it offers? How to Excel like a Pro Contrary to popular belief, we think Excel can remain a valuable tool for corporate treasury when used correctly. To maximize its potential, corporate treasurers should: 1. Use Automation Reduce manual tasks to make your work smoother and minimize errors. Options range from traditional methods like Visual Basic to newer tools like Power Query and Power Pivot. Optionally, RPA (Robotic Process Automation) can be added to automate the data refresh, data fetching, and action-taking based on the Excel outcome. 2. Ensure Traceability Knowing the journey your data has taken is crucial. Let’s break down why this matters: 3. Document the Excel-process It is important to document the purpose of the Excel file, the assumptions, how it was designed and how it should be used. Again, making use of Excel’s hidden tools can save a lot of effort for this often-neglected task. 4. Utilize Built-in Tools Over the years, Microsoft has improved Excel with powerful tools that can upgrade your existing Excel files: Power Query This tool lets you automatically gather and transform data from various sources, such as websites, databases, XML files, CSV files and other Excel sheets. You can perform actions like filtering and merging data with a few clicks. Importantly, Power Query remembers each step you take, which makes your process clear, robust, easy to replicate and to audit. Main advantages of Power Query include: Power Pivot This is another powerful tool within Excel that enhances your data analysis. Essentially, it allows you to manage and analyze large amounts of data, making your reports interactive and comprehensive. Main advantages of Power Pivot include: Looking Ahead with Excel Excel continues to be a key tool for corporate treasurers, but there’s a need to make it work better and more reliably. There are many features in Excel to help with this, but they are often hidden or forgotten. We at Automation Boutique can help you with reconstructing your Excel-based processes, making them automated, robust and easily auditable. Consider kicking things off with our “How to Excel” hands-on workshop. In this interactive and engaging session, we will work together to reconstruct your own Excel models, diving deep into Excel’s best practices and hidden gems. Don’t hesitate to contact us for further details. Happy Excel-ing! Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Implementing a Global Enterprise-scale Payment Hub: The Challenges and Business Impacts
This article is written by Nomentia With complex global operations, decentralized ways of working across treasury, finance, and accounting, a lack of process automation, and security concerns on the rise, you may be considering a payment hub for your enterprise. When juggling multiple priorities and all the operational tasks already stretching your organization, the implementation project may seem dreadful. It’s not a secret: Setting up a payment hub can be heavy-duty. Depending on the complexity of the case (number of entities enrolled, in which countries you roll it out, how many banks and bank accounts you have, whether you connect multiple ERPs, etc.), it may take anywhere from several days to several years. Nevertheless, if it’s done right, the payment hub can have significant business impacts—not just in improving ways of working but also in realizing cost savings. To explain how to set up a global payment hub on an enterprise scale, we will go through the main challenges, the project team and its setup, ways of working, lessons learned from our customers, and the benefits and business impact after the successful implementation. Before the start: the challenges you’ll face during a payment hub implementation All payment hub projects are different. While we have been working on small projects where we only connect one ERP and a few banks, and it only takes days to a few weeks, we have also been delivering large-scale projects for enterprises that could take even as long as one to two years of commitment. Whenever we undertake a massive project, both parties understand that it’s a long commitment and, therefore, a forward-looking project plan is essential. The challenges of implementing a payment hub are unique for each organization, but in our example, we will focus on the complex, enterprise-scale implementations where clients were dedicated to creating a payment factory within their organization. Keep reading even if you are implementing a less complicated solution, as the article gives some great insights for planning any payment hub implementation. 1. Global operations make the implementation complex Many Nomentia clients have undertaken massive payment hub projects with operations in over 100 countries. Even just operating in tens of countries has its challenges. If you must implement the payment solution in countries with strict legislation, like China or India, having a good implementation partner with experience is an advantage. Why do global operations make implementation complicated? One reason is integrating ERPs, financial systems, and banks. The other reason is more abstract: people generally don’t like change. It’s not unusual for local entities to have their own operational procedures; the process can also often be highly manual, if not entirely manual. In some cases, an integration between the internal system and the bank, like an ERP, may exist to execute payments automatically. Still, on a group level, you may have very little visibility on this. In addition to having localized operational procedures and local systems, each country and entity may have its own banking partner. Later on, we will discuss how working with many banks can complicate implementation. Moving away from the current ways of working comes as a big shock for many, even though you are trying to implement improvements that can benefit everyone. If you want to implement an immediately successful project, you must involve all necessary stakeholders in managing the change and getting the essential project-planning information. 2. Scattered system landscape Based on our first challenge, you may have already guessed the next one: A scattered system landscape can make the implementation project complex. If you have acquired new units from different regions, it’s possible that instead of running the business on one central ERP system, you have several ones used locally. Payment files may also be generated in other systems. If system consolidation is not currently possible, you should at least connect all source systems to the selected payment hub, allowing the payment files to be automatically forwarded to the correct bank. Having a scattered system landscape naturally poses a few challenges: 3. Preparing guidelines & change management: Communication is as important as the technical setup In an enterprise-scale project where tens of entities are involved, having good change management practices, ways of communication, and clear guidelines will set you up for success. Involve your teams The new payment hub will impact how hundreds of people work daily; at worst, moving from manual processes or local ways of working to a centralized, automated approach could be something people may even fear or be concerned about. Communicating how your operations will change positively when you introduce the new processes will help people perform their jobs well and make them feel involved in the project from day one. Your colleagues can also be great allies when you need to understand how to work with different banks globally. Choose the project team and include people with different backgrounds Choosing your team is the most essential part of the project! You don’t need a big team, but you should include people who understand your financial processes, how they work now, and how they should work when you automate them. Also, involve an excellent project manager to communicate with the payment hub provider, keep the project on track, and hold people accountable for the progress. Having one or two IT resources can also be helpful throughout the project. As you deal with integrations, although the payment hub vendor usually takes care of most of the integration work, your IT team members will still need to help the vendor, participate in the end-to-end testing process, handle master data management, and provide all the necessary technical details. Set up clear ways of working It’s also a good idea to clearly outline the ways of working for your project team. Identify the core team, the communication channels for sending each other instant messages and following the progress, your meeting cadence, and where you will share information with the larger group. 4. Connecting with the banks ‘Not all banks are the ‘same’—this is some of the best advice for when you start a payment hub project. Before you…
Frontiers of Banking: Navigating APIs & PSD2 Protocols
This article is written by Cobase In the modern corporate world, the efficiency of banking operations depends heavily on the communication protocols used to connect with financial institutions. In this extensive comparison, we delve into the nuances of various protocols like SWIFT FIN, SWIFT FileAct, Host-to-Host, EBICS (versions 2.4, 2.5, and 3.0), APIs, and PSD2, examining their strengths and weaknesses. In this blog post, we will focus on APIs & PSD2. APIs APIs, short for Application Programming Interface, play a vital role in today’s interconnected digital ecosystem. They enable different software systems to communicate with each other seamlessly and efficiently. Within the banking context, APIs provide a mechanism for banks to expose their services to corporations, facilitating direct integration with corporate systems. One of the main strengths of APIs lies in their ability to provide real-time or near-real-time access to banking services. Corporates can make API calls to check account balances, initiate payments, or fetch transaction history, receiving immediate responses. This allows corporations to have an accurate, up-to-the-minute view of their financial position and to execute transactions without delay. APIs also provide a high level of flexibility and customization. They can support a wide range of services and functionality, depending on the banks’ chosen level of exposure. Moreover, APIs can be designed to handle complex banking operations, like bulk payments or multi-step approval workflows, offering corporations the flexibility to tailor banking interactions to their specific needs. Another significant benefit of APIs is their potential for improving operational efficiency. By integrating directly with corporate systems, they can help automate banking processes, reducing manual intervention and associated errors. However, the use of APIs also brings certain challenges. A key concern is the technical complexity associated with their implementation. Each interface has its own specific requirements in terms of the request format, response handling, error handling, etc. Corporates need to ensure their systems are compatible with these requirements, which often demand significant IT effort and expertise. Security is another critical consideration. APIs essentially provide a gateway into the bank’s system, and improper implementation can lead to significant security vulnerabilities. Corporates need to ensure robust security measures, such as encryption, authentication, and access controls, are in place when using them. Moreover, the availability and functionality of APIs are entirely dependent on the bank. Not all banks may offer APIs, and even among those that do, the range of services exposed via APIs can vary widely. In conclusion, APIs offer a powerful and flexible mechanism for corporations to interact directly with their banks, providing real-time access to banking services and the potential for improved operational efficiency. However, corporations need to navigate the challenges of technical complexity, security, and variability in bank API offerings to harness the full potential of APIs for banking communication. Strengths: Weaknesses: PSD2 The Second Payment Services Directive (PSD2) is a transformative regulation implemented by the European Union to foster innovation and competition within the financial sector. PSD2 mandates that banks provide third-party providers (TPPs) with access to their customers’ accounts through APIs, provided the customer has given explicit consent. This is often referred to as ‘open banking’. This directive effectively shifts the control of financial data from banks to consumers, empowering them to use third-party services for managing their finances. For corporations, PSD2 presents an exciting opportunity to directly access banking services and improve financial operations. One of the main strengths of PSD2 is that it paves the way for real-time access to banking services. Corporates can utilize APIs to fetch account information, initiate payments, and access other banking services in real-time. This not only enhances visibility into their financial standing but also speeds up transactions and decision-making processes. Another significant advantage of PSD2 is its potential for innovation. By opening up banking data, PSD2 has spurred the development of new financial services and solutions. This can lead to more efficient banking processes, cost savings, and better financial management. PSD2 also lays down stringent security measures for financial transactions. It introduces strong customer authentication (SCA) requirements, which mandate two-factor authentication for most electronic payments, thereby reducing the risk of fraudulent transactions. Despite its potential benefits, there are also associated challenges. One of the major concerns is data privacy and security. While the regulation has strict guidelines for customer authentication and data protection, sharing financial data with third parties inevitably increases the risk of data breaches. Furthermore, the technical implementation of PSD2 APIs can be complex. Corporates need to ensure that their systems are compatible with the APIs of different banks, each of which might have unique requirements. Also, PSD2 is applicable only to banks operating within the European Economic Area (EEA). Corporates with banking relationships outside of the EEA might not be able to leverage the benefits of PSD2 with those banks. PSD2 is a ground-breaking regulation that has the potential to significantly improve the way corporates interact with their banks. The benefits of real-time access to banking services and the potential for innovative financial solutions must be weighed against the challenges of data security, technical complexity, and geographical limitations. Strengths: Weaknesses: Unique challenges While all these protocols offer diverse strengths, they also come with their unique challenges. Corporates must carefully assess their specific requirements, technical capabilities, security needs, and the geographical scope of their banking relationships before choosing the most suitable protocol. Consulting with financial and IT experts can help inform this crucial decision. Navigating the labyrinth of banking protocols can be daunting, but there’s a solution that simplifies it all – Cobase. With the ability to connect via all the protocols mentioned above, Cobase is a one-stop platform for corporates looking to streamline their banking communications. One of the key strengths of Cobase is its deep, in-house knowledge across all banking protocols. Whether it’s SWIFT FIN, FileAct, Host-to-Host, EBICS (2.4, 2.5, and 3.0), APIs, or PSD2, the technical experts at Cobase are well-versed in all. They take the burden off corporates to learn and implement these technical standards, allowing them to focus on their core business. What’s more,…