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What Separates Fintech from Banks? Treasurers Need to Know.

  • By Karla Friede
  • Published: 10/5/2016

Fintech firms are redefining e-payments by making it possible to make card, ACH, check and even cross-border payments within a single process that can be initiated using nothing more than standard reports from a company’s accounting system. Once payment is sent, these fintech payments are guaranteed to arrive with no further effort on accounts payble’s part.

Despite fintech’s promise many treasury and finance professionals wonder: What, exactly, is fintech? How is it different from traditional banking?

Riding the rails

The best way to answer is to imagine the payments process as a train. Fintech payment solutions are similar to bank solutions in that they ride on the same payment “rails.” The difference between bank payment solutions and fintech payment solutions is in the “cars” that ride on these rails.

If you want to send ACH payments through your bank, you need to have each supplier’s current bank account number, routing number and remittance address, along with the amount of payment in a file to the bank. Your file has to be formatted in a particular way and can’t have any errors in it, or the payment won’t go through. Banks also do next to nothing to help AP with one of the biggest burdens around payments—collecting and maintaining supplier information. 

Some banks will accept all payment types (ACH, card and check) in one file, but that’s not really a single process. You still have to have to compile the file knowing what type of payment your supplier accepts and, ultimately, the payment goes across three different sets of rails, creating three different processes to manage on the back end. If something goes wrong with a payment, it's hard to reconcile, because neither AP nor anybody at the bank can see across all those payment types in one place.

Since there is no global set of rails, cross-border payments through a bank require a fourth, entirely separate process that sits outside the accounting system—you have to hand-key the information in your bank portal and then manually key it back into your accounting system. You have zero visibility from when you send the payment until you get confirmation of receipt. If something goes wrong, you may not know until days or even weeks later that the payment never arrived.

Building a better car

Fintech companies are looking at this disjointed process and using cloud technology and APIs, combined with old-fashioned customer service, to bring all payments, including cross-border payments, together in one simple efficient electronic process with supplier enablement services on the front end and payment support on the back end.

APIs are what make it possible for applications to connect with each other, sharing important data and taking certain actions on one another’s behalf. Using the cloud, it's easy to use APIs to connect to virtually any system that's already in place in the enterprise.

Fintechs also use technology and people to provide all of the services surrounding supplier payments. They collect, house and maintain all of the information required to pay suppliers so AP doesn’t have to. They constantly keep it up to date to ensure the payment goes to the correct spot and that payment is made by the most efficient and cost-effective way accepted by the supplier.

Using different APIs, fintechs bring together all the different payment rails, the cross-border wire process, and the supplier data in one place. It’s all served up in a single interface, in a way that makes sense for someone who’s working through an accounts payable process.

They have one process for all their payments—ACH, card, cross-border and check. There’s no need to assemble specific and detailed payment files. The information can be fetched and brought into the interface from whatever payment file their accounting system creates. All they have to do is review and press ‘pay.’

They can view all payments as they move through the system, all the way to settlement. If they need to track something down, it’s right at their fingertips. And if anything goes wrong, the payment solution provider customer support team handles the follow up. Delivery of the payment is guaranteed.

The irony is that if customers had just stayed on paper, payments would have been more efficient because they would've had used process. Fintech payment solutions are redefining all of that. With today’s technology, AP no longer has to know or care how the payment gets made. They only have to know who they want to pay and how much. They can go to one interface where they have one electronic process for all payments. There’s efficiency, visibility, traceability, accountability, and data. That’s what electronic payments means today. It’s time to send those rumbly old cars to the rail yard, and put your payments on a bullet train.

Karla Friede is CEO and a founder of Nvoicepay, a provider of B2B strategic payments for the enterprise.

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