Breaking the Mould – Creating a Supply Chain Aware Payments Platform

Traditionally, payments processing has been subservient to many business domains such as Supply Chain Finance, Trade Finance, Integrated Account Receivables, Integrated Accounts Payables etc. The context for an outgoing payment emanates in a business silo, is executed and then handed off to the Payments platform for message building and outward transmission to the counterparty. An incoming payment message received from the network is intercepted by the Payments platform and intelligently routed to the appropriate business silo, for it to be subsumed. This could explain how in many banks, each business silo ended up being self sufficient from a payment processing standpoint resulting in creation of redundant payment platforms with overlapping functionality, each separately hooking up to payment gateways. These payment platforms have little or no knowledge of the background for an outgoing or an incoming payment / collection. As banks look at the complex maze of systems that have been set up, systems landscape simplification becomes an overbearing thought. In many banks, myriad payment systems are giving way to single universal payment solutions that cater to payment processing needs of all business silos. While this is a visible trend, a silent phenomenon is surreptitiously gaining ground, almost unnoticed. IT solution architects are exploring the insertion of mainstream business logic into these payment platforms.

Sometimes..not thinking straight helps..

Legacy accounts payable solutions struggle with reconciliation of invoices with purchase orders when it comes to complex scenarios where the invoice and PO currencies are different, or when the invoice carries a discount or a penalty agreed between the trading partners for early / delayed payments or when the parties have agreed to a credit / debit note. Instead of letting manual recon take over, it makes sense to share the outstanding invoices and PO (s) to the recon engine of a new generation payment platform. The extensible rule writing available therein, permits these complex cases to be handled besides the regular payment recon that is expected to perform. In the legacy world, the payments platforms got the trade data embedded in remittance information that were painfully keyed in by the accounts payable team before releasing payments. Post remittance, all except the core payment information such as counterparty, sort code, value date, amount, currency and recipient bank details remained. With the change in strategy, the IT architects explore storing of open invoice data in the payments platform, to allow complex recon as well as automated inclusion of structured remittance information. This also affords generation of electronic remittance information for the supplier in the form of EDI 820 / STP 820, EDI 835 (for healthcare payables) that can be configured using file and message format designers present in top breed payment platforms.

Extracting value from every Payment architecture component makes the investment repay itself earlier..

Card programs are integral to payables program. One typical challenge faced by IT and Business managers in banks, is that the card schemes are usually run through as separate applications outside of the payables solution. Here again it is difficult to find a single solution that can handle travel and entertainment expense management, virtual card number generation and commercial card based procurement. This forces banks to tone down features of their cards program. Perceptive IT and solution architects are seeking to use the highly configurable file management capability of grade A payment platforms to design employee card expense statements formats, write expense validation rules using the rule engine to identify non permitted expense items as the statements are uploaded on the banks portal.

Virtual cards represent an effective tool from a corporate account take over protection standpoint besides being immensely valuable when combined with commercial cards. A tier one Payments platform can facilitate quick launch of a virtual card program. How?...Single / multi use random numbers can be generated using the rule engine one for each invoice that the customer wishes to pay, to serve as Virtual Card Numbers (VCNs). After parsing an ISO8583 message (which obviously is one of its strengths), such a well sculpted payment platform can extract the VCN and resolve the DDA account number to post the incoming direct debit for an approved invoice.

Did you mention that your payments platform can handle limits?

The power of a well designed payments platform is its inward looking nature. It tries to solve many of the problems itself. Hence it does not come as a surprise that limit definition and monitoring is available as a capability within the platform. There are few who would look at the limits component to do more than payment limits tracking. Those that do, would be excited to know that such limits need not be just for payment processing. Limits can be even non fund based credit facilities that the trade finance domain requires. A Payment platform can metamorphose into a trade middle office of some sort when it can hold the trade limits within the limits module. Before a corporate LC / BG request is transmitted to the Trade back office, the MT700 / MT760 message read by the message parser in the payments platform can pre-validate the request to check for headroom availability.

As soon as the buyer uploads approved invoices on the Supplier bank’s portal or presents a file through host to host channel to the supplier’s bank, the file parser component (belongs to the payment platform of course..) communicates with the limits module in the payments platform that in turn suggests the quantum of finance available against the portfolio of confirmed receivables, using the computation rules.

When an incoming payment is deciphered, and the payment platform reassociates it with an open invoice using recon rules and updates the payment analytics to reflect the repayment history of a counterparty. Payment analytics assumes a new dimension when it is made to understand the context and then it starts to reveal health of the receivables portfolio and the days sales outstanding or the past due period of receivables program.

Conclusion:

Think out of the box. This is the new ‘Normal’. New age payment platforms are tuned to go beyond conventional payment processing. Asking ‘what else it can do’ can lead to astute Business and IT strategy..