Automated bank connectivity through a single secure channel has become essential to reduce costs, facilitate on-boarding by banks, secure transactions, speed up and automate reconciliations and reduce staff workload. A “Bank Single Gateway” is no longer a "plus", but a "must" that every fund servicer or fund should have. It's the key to finally having better cash management, as multinational companies do.
True bank connectivity
Many industries or institutions, such as family offices, hedge funds (i.e., PE's/RE's), SME's, among others, consider banking connectivity and automation as simply using a token (virtual or physical). This naivety makes one smile. This is not what a professional treasurer would call "banking connectivity". If connecting and digitizing means using a token to connect (manually) to each bank site, account by account, entity by entity, then we are far from it... Banking connectivity can only be conceived if it is industrialized, automated and centralized via a single platform, a sort of single access point, with a single format, and a secure connection, generally via a single channel (but not just one - sometimes several depending on the counterparty bank) which allows payment instructions to be sent via a single template, a single tool, a single secure and encrypted connection, to any bank (and obviously to retrieve extracts in the best possible format - i.e. Camt053 format of SWIFT). It is also possible to manage signature powers. As Napoleon used to say, a little picture is worth a thousand words, so let's have a look at the attached diagram which describes the concept. Many people do not understand the risks they could avoid and limit, the speed they could gain, the costs they could reduce and the simplicity they could achieve, not to mention the satisfaction of the "approvers" (and end-users).
Bank Single Gateway: how it works?
Virtuous bank connectivity
Being connected via a secure (single) channel is essential to secure payments against fraud, external or internal, and against errors. It allows for easy and secure approvals by approvers (two or more) on a single format, via a single application, regardless of the bank or counterparty. Standardizing is simplifying the life of the users. The approver receives an email alert and can connect to the secure payment tool. He can analyze the underlying documents, validate them, and approve the payment. It will then be sent in the same way to the second signatory for approval. Once approved, the payment can be initiated by the person in charge of the treasury or accounting. It will be traceable, secure and will allow the retrieval of bank statement information to automate the reconciliation. This allows for several advantages, as summarized below.
PROJECT OBJECTIVES
· Cost reduction by reducing number of banking solutions used.
· Risk mitigation by automation and enhanced Internal Controls.
· Opportunity to revamp existing processes and to rationalize tools and partners.
· Install transparency, visibility and enhancing of reconciliations.
· Exclude recourse to manual or paper payment processes
· Be (if possible) bank agnostic.
CHALLENGES
· Overly complex ERP environment and IT architecture with several different systems used simultaneously.
· No cash-flow transparency and absence of visibility on outflows.
· Labor-intensive payment processes with the use of multiple manual and domestic e-banking tools.
· New regulations and specific country constraints or requirements.
· Increasing risks of frauds.
· High risk of errors given manual processes.
· High dependency on banks.
· Commitment Authorities into the ERP’s.
Channels of bank communication :
Industrialize your payment execution
Contrary to what some might think, such a project is not complicated to implement, and many providers exist.
Entities that provide financial services with many customer accounts could benefit greatly, as the number allows them to pool the tool and rely on the pool banks already connected. It is therefore hard to understand why entities that are in the business of providing financial services do not use payment factories to industrialize, protect and improve their execution. We think about Fund Servicers, for example. But we can also mention alternatives funds, family offices and smaller or mid-cap corporates. Today being listed or selling fund products through organizations without a Bank Single Gateway, with payments done via token and each bank website is not acceptable anymore and dangerous in terms of risk management. Furthermore, the customers of the fund industry or the shareholders of smaller corporates and family offices will be more grateful, and the reports produced will be of better quality. So why hesitate and not industrialize the payment processes on behalf of their clients or on their own behalf?
François Masquelier, CEO of Simply Treasury – Luxembourg June 2022
Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).