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White Paper - Fortifying Security With A Centralized Payments Solution 1 Fortifying Security With A Centralized Payments Solution A BELLIN White Paper 2019

Transcript of A BELLIN White Paper Fortifying Security With A ......White Paper - Fortifying Security With A...

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Fortifying Security With A Centralized Payments Solution

A BELLIN White Paper

2019

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1. Executive Summary

2. The State of Corporate Payments

3. Deeply-Seeded Payment Challenges

3.1 Complex bank connectivity and decentralization

3.2 Decentralization leads to payment fraud and

duplicate payments

3.3 Fraud bypassing controls

3.4 Visibility and controls with cross-border payments

4. Centralized Payments Solutions

4.1 Overcome complex connectivity limitations via a

centralized platform

4.2 5 Essential functions for your payments software

4.3 Cross-border connectivity: improvements

sparking efficiency

5. Conclusion

6. About BELLIN

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1. Executive summaryEffective treasury management is an ongoing process that is best executed utilizing a set of fundamental objectives: cash flow visibility, company-wide controls within key financial functions and processes, and a firm grasp on balances and exposures. Achieving these objectives can be fleeting, resource-intensive and require an abundance of coordination, especially within organizations that have intricate webs of far-reaching subsidiaries with just as many banking relationships and decentralized processes.

Such companies often grow faster than they can establish systemic procedural and technical remedies. Often times, it is easier to take a micro-approach for each subsidiary to tend to their own crop, and avoid dealing with the group-company's financial matters as a whole. When this happens, a treasury department is attempting to achieve the fundamental objectives with one arm tied behind their backs.

Staggering volumes of banking relationships and accounts elevates the need for coordination that is driven by procedural and technological solutions. It is not uncommon for companies to have anywhere between 1 to hundreds of total bank relationships, resulting in several accounts, logins, tokens, and more importantly: the possibility for fraud.

In terms of procedural and technical remedies, the obvious answer is the use of financial technology that provides centralization, automation, and security. There is a shift to centralization, but there are still many treasury and payments processes that are left stagnant. In this white paper, we will take a payment-driven approach by examining potential problems like cyber fraud, connectivity and transparency issues leads to liquidity risk. Then we take a dive into how financial technology via a centralized payments solution is the proper answer.

White Paper - Fortifying Security With A Centralized Payments Solution

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2. The State of Corporate PaymentsThe gradual progress of payments technology within the retail sector has left corporate payments stagnant and grasping for change. Consumers within the retail space have shown a demand for mobility, cashless transactions, minimal fees and quick transaction execution, and solutions spring about to tend to those demands. With online shopping cannibalizing most other forms of retail and commerce, it is clear why that shift has manifested. Shoppers can now browse items, purchase clothes, groceries, furniture, etc. and make an instantaneous purchase from their pajamas. Advents like digital payments and instant payments meant for consumers have only helped widen the gap between B2C and B2B.

What has this meant for corporate payments? Which seems to have fallen by the wayside in terms of technological innovations to expedite processes. Corporate payments have been hamstrung by lengthy transaction times, issues with invoices or shipped goods, supplier

verification, payment security, and complex bank connectivity solutions leading to security risk, etc.

Treasurers are tasked with maintaining maximum transparency, ample liquidity for daily operations, and executing yearly financial forecasts, while dealing with the stagnation within corporate payments. Innovations are beginning to sprout with services like SWIFT GPI, which is the corporate response to consumer-oriented solutions like instant payments and consumer-to-consumer cash apps. As the world shrinks, the delay with payment processing seems to be shrinking with it.

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3.1 Complex bank connectivity and decentralizationThere are various bank connectivity solutions available including SWIFT, host-to-host or a local communication standard. While a combination of different forms of connectivity represents the most suitable scenario, it creates an elevated need for centralization to maintain visibility and control.

Bank Connectivity Methods

Decentralized payments processing is common when companies have multiple subsidiaries, bank connections, formats and accounts. Payment fraud, stagnant processing times and banking costs are pain points, potentially because companies are not utilizing a centralized platform to connect all the above-mentioned factors.

3. Deeply-Seeded Payments ChallengesDecentralization of treasury and accounting leads to 4 vital payment-related issues for treasurers:

Complex bank connectivity environment

Control over Cashflow

Payment fraud

Global visibility

Cloud-based (externally hosted 3rd party)

Host-to-host (Direct Connectivity to Banks)

EBICS

SWIFT for Corporates

Via e-banking

Manually

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Bank

Bank

Bank

Bank

Bank

Payment Gateway

Cloud-based solution

Bank communication & exception handling

System integration

User access & internal processes

Subsidiaries

Subsidiaries

Subsidiaries

EBICS

H2H

3.2 Decentralization leads to payment fraud and duplicate payments“Payment fraud” is often used as an umbrella term for anything that is somehow related to payment compliance: fraudulent payments, internal manipulation, data theft, illegal pay-ments, or the breach of embargos and sanctions.

It is an arduous request for your current payments solution to provide ample protection against payment fraud or duplicate payments. Though it can be tempting to assume controls can provide protection, the facts can show otherwise.

Companies without system support experience:

Multiple banking connections and large number of people involved in payment approvalsUsing various tools and platforms can lead to errors and users occasionally ignore security instructionsMany systems with segmented master dataManual processes leads to errors in data entry and transmissionFraud or data errors are only detectable at a late stage

One of the mentioned pitfalls is manipulated account master data. Supplier invoice payments are typically the largest annual payments and consequently, represent the highest amount of risk.

Duplicate payments represents another area which may seem negligible, but can be costly.

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According to Acculytic's report on duplicate payments, 2 "industry studies have shown that the rate of duplicate payments can be as high as 3%.1 In fact, 20% of the best performing companies, responding to the 2013 ePayables survey performed by Ardent Partners, had an average duplicate payment rate over 1%."

Acculytic's report also stated that, "the Institute of Finance & Management (IOFM) concluded that a quarter of the respondents reported duplicate payment rates between .1% and .5%. Applying these rates to different purchase volumes suggests the following rate of duplicate payments may be generally applied across all organizations." 2

3.3 Fraud bypassing controlsThe following are ways duplicate payments and cyber-fraud can bypass controls:

Human error transcends even the most secure systems.

Regardless of how technologically-sound and secure your payment processing is, mistakes can always occur. Systems can typically alert when duplicate payments occur by executing matching runs. However, matching runs are incapable of determining if there was a typo earlier in the submission phase.

Multiple solutions leading to inefficiency

The presence of multiple ERPs and connectivity solutions is not rare with large multinational organizations. Payment processing becomes more complex in terms of ensuring ample security is present. The seamless connectivity between all accounts, banks, and services is a paramount function to be able to detect duplicate payments.

Platform migration limbo period presents payment risk

When migrating from one ERP or service to another, there is often a period in which one platform is introduced before the initial platform is removed. That period before the legacy platform is removed causes a risk for duplicate payments.

Rate of Duplicate Payments ($)

Purchase Volume 0.1% 0.5% 1.0%

$ 10,000,000 $ 10,000 $ 50,000 $ 100,000

$ 50,000,000 $ 50,000 $ 250,000 $ 500,000

$ 100,000,000 $ 100,000 $ 500,000 $ 1,000,000

2. Retrieved 16 Jarnuary 2019 from http://acculytic.com/Data/Sites/1/blog/duplicate-payment-white-paper-by-acculytic.pdf

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ERP Controls: biggest strength is a potential weakness

Automation comes with pros and cons. ERP platforms are effective with routine tasks and your integrated controls systems can hamper the speed and efficiency of your productivity. Duplicate payments are detected based on the parameters set and if there are too many parameters, a majority of payments will be flagged. With too few parameters, duplicate payments will slip through the cracks.

ERP Accounts Payables are susceptible to internal fraud

The presence of multiple ERPs and connectivity solutions is not rare with large multinational organizations. Payment processing becomes more complex in terms of ensuring ample security is present. The seamless connectivity between all accounts, banks, and services is a paramount function to be able to detect duplicate payments.

2. Retrieved 16 Jarnuary 2019 from http://acculytic.com/Data/Sites/1/blog/duplicate-payment-white-paper-by-acculytic.pdf

3.4 Visibility and controls with cross-border paymentsVisibility and control of cashflows are two important aspects that treasurers rely on on a day-to-day basis. With a centralized treasury department, these two factors work synergistically.

“I see the money and I need the freedom to move it whenever I need to.” As new solutions and software is integrated across subsidiaries, the central treasury may have a hard time maintaining visibility and control.

With multinational companies, cross-border payments are a large area of focus for treasurers. Funds tend to have longer life-cycles as they pass through several banks before transferring from the payer to the beneficiary. A longer lifecycle represents a higher chance for error, fraud, and more time before funds are available.

This process is often referred to as correspondent banking, and this process represents four key obstacles for treasurers:

Time

Traditional cross-border payment orders can take several days from being released to being credited – which presents a potential risk for improper cash management.

Transparency

Several correspondent banks can act as intermediaries between the bank initiating the payment and the beneficiary bank which creates a paper trail that can be hard to follow.

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Tracking

Today, treasurers neither know where a specific payment is located, nor when it will be credited to the beneficiary – an incalculable business risk and a situation that often leads to time-consuming queries, trying to chase a payment.

Remittance data

Remittance data is often altered somewhere along the line or information is lost. Sometimes the amount eventually credited to the account does not match the initial payment order because correspondent banks have deducted fees, resulting in a tedious reconciliation process once the money has arrived.

4. Centralized Payments Solutions4.1 Overcome complex connectivity limitations via a centralized platformFor comprehensive protection, a centralized treasury platform will seamlessly connect all bank accounts and enable invoice monitoring, disbursements and changes to vendor lists. The centralized platform allows you to connect any ERP to any bank giving you a true, single-window view of your worldwide banking data.

The platform should scan for dozens of red flags including:

Company name initials

Initial invoices with low amounts

High-risk post codes and country codes

Sequential invoice numbering

Automatically match employee and vendor data

Unusual spending amounts or odd fluctuations in payments

Control costs

Increase e�iciency

Reduce operational risk

Strengthen controls and compliance

Decrease bank dependence

Essentially, a comprehensive structure to process payments is enabled that is accessible in multiple countries and across all subsidiaries.

Benefits of Streamlining Bank Connectivity

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4.2 Essential functions for your payments software

1. Flexible bank connectivity with domestic or international capabilities to connect to any bank, service or ERP available in any format.

2. Location independence. Ability to consolidate and analyze your data from any system that can support any language or currency.

3. Digestible and actionable data extraction. Data extracted should be concise and provide relevant alerts for fraud or issues in payment processing.

4. Payments initiation for all subsidiaries is enabled.

5. Intuitive interface that allows seamless platform or bank connectivity.

Bonus function: the ability to use your automation tools to analyze historical payments and check for duplicate payments, tax or currency problems, contractual compliance, etc.

Flexible bank connectivity is essential. Knowing this, treasurers are tasked with realizing and dealing with limitations and the potential for fraud. Centralizing payments processes with a centralized treasury management system supplemented with automation is an efficient way to maximize your treasury controls and minimize associated risk and fees.

Payment Factory – Enterprise Wide Payments Centralization

Payment instructions

Payment instructions

Vendor

Cash Management Bank

Cash Management Bank

Cash Management Bank

Subsidiaries

Vendor

Vendor

Vendor

Vendor

Vendor

Payment Factory

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3. Retrieved 18 Jarnuary 2019 from http://acculytic.com/Data/Sites/1/blog/duplicate-payment-white-paper-by-acculytic.pdf

4.3 Cross-border connectivity: improvements sparking efficiencyTechnological innovation and regulatory changes are having an impact on cross-border payments. Here are a few ways:

Transnational payment systems

Despite somewhat-slow progress, emerging transnational payment networks are reducing the reliance on correspondent banking networks, allowing for more direct payment routes.

Government regulations

Regulatory initiatives are impacting the manner in which payments can be made and the types of fees that can be charged.

Multinational entities gaining traction

Multinational banks are obtaining increased economies of scale while unintentionally concentrating credit risk during settlement processes.

Risk and liquidity management

Automated payment platforms are becoming increasingly–efficient and secure in regards to managing credit risk, liquidity needs, and other treasury-related costs.

Banks are bundling payments and outsourcing operations to other banks and third-party processors. This is driving process efficiencies, but further disintermediating financial institutions from the payment process and the financial supply chain.

In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers that complete in 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020.

In a new report, “A vision for the future of cross-border payments,” SWIFT and McKinsey & Company found that B2B cross-border transactions accounted for $125 billion in revenue in 2018. The next category, consumer-to-business (C2B) cross-border payments, trailed far behind at $54 billion. 3

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5. ConclusionTreasurers and CFOs are tasked with ensuring full visibility of cash flows and allocation as they attempt to automate and optimize daily tasks. Global payments remains an area of need and centralization is where the needle is pointing.

Services like SWIFT GPI are being introduced to the B2B sector and platforms like the BELLIN tm5 enables multiple ERP connectivity with SWIFT gpi payment processing with your AR/AP. tm5 ensures fast and transparent global and domestic payments with a focus on security.

6. About BELLINBELLIN is the global leader in technology for corporate banking and treasury. We provide solutions for the financial sector, catering to a range of clients from large multinationals to SMEs and banks. Founded by a treasurer, BELLIN has been championing innovation and out-of-the-box thinking since 1998. With the treasury software tm5 as the centerpiece, BELLIN makes a fundamental difference by offering solutions that zero in on the relationship between corporates and banks and cover everything from payments to FX, cash and risk management. BELLIN is an international company with offices on four continents, powered by a trailblazing fintech spirit and yet firmly rooted in the heritage of German craftsmanship and engineering. BELLIN delights 500 clients and over 80,000 users around the globe.

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BELLIN. Treasury that Moves You.

[email protected]

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BELLIN GmbH

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