Finance

Why APIs are essential to enterprise payment optimisation

Ceviant Finance

8 June 2022 | 1:18PM GMT

Application programming interfaces (APIs) help consolidate enterprise payments and reduce the need for third-party intermediaries.

An application programming interface (API) allows two applications to communicate with each other. They play an increasingly vital role in consolidating disparate computing environments and ease the burden on end-users who would otherwise have to work with multiple apps.

Payment APIs, in particular, has seen widespread adoption in the consumer and corporate worlds, making it easy to send and receive money and manage finances. Corporate treasuries are also beginning to adopt APIs to optimise their payment processes.

APIs are becoming a necessity in enterprise payment optimisation due to the often- convoluted nature of the payments space. Many payment providers specialise in different industries and company sizes, with features and functions varying considerably from one provider to the next.

When determining which technologies and processes to adopt for optimising your enterprise payment processes, there are various approaches you can take. In this article, we will investigate the three main options and learn why APIs present the future of banking.

Manual payment processing and tracking

Particularly for smaller companies, the traditional approach is to track and process payments directly through their banking institutions. For companies with multiple accounts, this involves logging into each banking portal individually and keeping a manual log of all payments across all accounts in a spreadsheet or accounting app. All the while, finance teams must ensure that the proper accounts have the necessary funds in them so they can pay their vendors on time.

Manually handling payments does offer the benefit of direct control over payment operations. There may also be some small cost savings due to not using any intermediary software for automating or managing payments. Manual payment handling may be satisfactory for small companies with small and uncomplicated supply chains. However, it severely lacks scalability for fast-growing companies and supply chains.

As a business grows, so too does its payment volume. Tasks that previously took just a few hours per week to complete may now require a dedicated full-time employee. The law of diminishing returns kicks in at some point, but the increased workload is not the only problem. In addition to becoming extremely time-consuming, there is also a growing risk of human error. When burdened with growing workloads, staff may miss a significant payment or forget to record a payment. In the worst-case scenarios, finance teams may breach regulatory compliance or be forced to take out a high-interest loan to pay their vendors on time.

In conclusion, manual payment processing may be adequate for very small companies, but it soon becomes practically impossible to manage as your organisation grows.

Billing automation and streamlining platforms

Another option for handling payment processes is to use a billing automation platform. These platforms cut down on time and errors by essentially automating billing operations. For example, the platform might automatically generate and submit invoices, requiring minimal manual input. It should also collect payments and handle approvals and provisioning. Such platforms typically provide simple self-service portals so that finance teams can manage all their key processes from a single interface. Some may also offer data-driven visual insights to help improve cash flow and make it easy to identify patterns to drive informed decision- making.

Although billing automation and streamlining platforms offer convenience and scalability, they also mean surrendering control. For example, the companies behind them usually hold payments and process them on behalf of your organisation, which will lead to additional charges on top of your bank costs. You will also have to pay for a software-as-a-service (SaaS) subscription. According to Investopedia, automation platforms often costs upwards of $600 per month for the base subscription and overage rates ranging from 0.5 to 0.9%.

Billing automation platforms can be a good choice for businesses that have grown beyond the point where it is practical to handle their payments manually. There has to be a solution that better balances affordability and automation.

Payment processing with open banking APIs

APIs are software intermediaries that sit between two applications and let them communicate with one another. Cloud service providers most commonly develop them to enhance their interoperability with other industry-leading solutions. In the case of payments processing, APIs can enable a company’s various finance platforms and services to interface with those used by their partners, vendors, and financial institutions.

Open banking is rapidly becoming the gold standard in today’s financial sector. The concept revolves around using publicly available ‘open’ APIs that allow third-party developers to build custom applications around their services. Open banking APIs establish a real-time connection between banking institutions and cash management platforms for corporate treasuries, empowering you to initiate and send payments and beneficiary data directly to your banking institution. Payment requests may be created directly within your cash management platform, with payment processing handled directly at the bank. This effectively eliminates the need for a third-party intermediary.

Payment processing with open banking APIs enables you to access all the automation benefits that billing automation and streamlining platforms have, albeit without having to pay third-party fees. Moreover, you can initiate and track payments via ACH, wire, RTP, and other methods in a single, secure, and centralised cash management platform. This also gives you access to real-time data-driven insights into payment operations that you can use to support continuous improvement and optimisation.

The only real drawback of open banking is that not all banking institutions support it. However, things are changing fast, especially since the concept is only four years old. Today, there are already 63.8 million open banking users in Europe and 5.7 million in the US, and those numbers are growing fast.

ISO 20022 and the future of payments

ISO 20022 is a globally adopted standard for financial messaging that is changing the way payments are made and processed. Developed by the International Organization for Standardization (ISO), the standard aims to increase efficiency and reduce costs within the financial industry by enabling the exchange of structured data between financial institutions and corporates.

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Treasury departments are under pressure and must adapt to rapid technological advancement. Managing multiple liquidity pools, streamlining numerous payment types and maximising value are some of the treasury division's pressure points. With the rise of APIs and the inevitable shift to a digital-first approach, treasurers need to embrace change. This attitude has been further accelerated by the Covid pandemic and remote working, forcing institutions to reprogramme their business processes and workstreams.

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Why APIs are essential to enterprise payment optimisation

Application programming interfaces (APIs) help consolidate enterprise payments and reduce the need for third-party intermediaries.

Treasury Payments Reinvented

Streamlining payments into a simple and effective process can often be elusive to corporates. An ineffective payment system leads to inaccurate reporting, loss of valuable time and, ultimately, a distressed treasury department. These potential issues have been further amplified by the current business climate, where erratic supply chains and remote working environments have become the norm rather than an exception.

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