THUD! That’s the sound of the 900-page 2022 Nacha Operating Rules & Guidelines book being dropped onto an engineer’s desktop. SIGH …That’s the sound of engineers as they work to understand and memorize the first, oh, 300 or 400 pages of the book while building the payment system the company is asking for. HEAVY SIGH … That’s the sound of the engineers realizing that they must recode part of the application because of something new they learned on Page 645 of the guidelines. FLIP … That’s the sound of calendar pages turning as, six months to a year later, the payment system is finally up, running and connected to … one bank.
Current Payment Systems
Banks’ back-end systems are complicated, heavily regulated, and more than likely set up sometime in the ‘90s. Knowledge of how to integrate with those systems has been lost to time. For companies taking a DIY approach to marshaling payments, this results in a lot of hand coding for engineers who likely didn’t know what they signed up for – not to mention added risk to the company and its customers.
All of this is to say that building a payment system is hard – really, really hard. Companies typically go the route described above, assigning an engineer or two who has never dealt with payments before to build a payment system; or they hire a few dozen accountants, give them an Excel spreadsheet, and tell them to log into the bank’s online system and process and record each payment by hand. Either way, the work doesn’t scale efficiently – it effectively doubles, triples, quadruples and so on with each new banking institution the company connects with.
This has been the status quo for many years, but the process of building a DIY payment processing system is not keeping pace with today’s fintech reality, where virtually every company in every industry has a need to move money around quickly and efficiently.
Indeed, companies tend to build what’s right in front of them. “I have this bank, and I need to build this integration.” They don’t think about abstracting the process across multiple banks and the differences between Bank A and Bank B (and, soon enough, Bank C and Bank D …).
In fact, 84% of respondents to a recent survey said they face payment operations problems, including slow payments, a high rate of payment failures and data quality errors. The impact is huge, both in terms of employee frustration and loss of productivity, but also increased risk and the potential for lost revenue. It’s clear that something needs to change, with 99% of the decisionmakers surveyed responding that upgrades to payment operations would be helpful.
The Advent of Payment Operations Platforms
A new technology category is emerging that will help companies move and track money: payment operations. With a payment operations platform, companies will be able to automate every step of the payment process by integrating with the organization’s banks, structuring their accounts, and managing their general ledger through APIs or a web app.
The advent of the payment operations platform is analogous in a way to the emergence of the public cloud. Twenty years ago, new companies bought a data center rack and added servers as needed. Now, public clouds are the default. If you are racking servers, you are a couple of decades behind the times – and wasting far too many IT resources on managing those servers. And so it will go with payment operations. Companies of all sizes and across all industries will be able to automate payments using modern software and APIs, resulting in significant gains in productivity, faster payments, reduced risk, fewer errors, better customer service and greater insight into finances.
Signs of the Fintech Times
There are few companies that won’t benefit from a payment operations platform, but there are several telltale signs that the automation and domain knowledge that come with payment operations platforms will save your company time and money, as well as significantly decrease risk. These signs include:
- A team is logging into the bank every day.
- You are copying and pasting data from the bank into a spreadsheet.
- You are manually reconciling statements.
- The number of payments you are sending to the bank is growing.
- It takes you 28 days to close the monthly books.
- You are expanding into a different country or, more likely, countries.
- You are adding a new bank.
If there is one place you do not want an error, it is in your payment operations stack. Yet, the process of building your own payment system is extremely prone to error. An automated payment operations system provides a platform that is simple, sustainable, secure, and scalable.