Business agility has gone from being a competitive advantage to help a company get ahead, to a necessary requirement in keeping pace with the competition.
Treasurers need to move faster than ever. The days of the once a month cash consolidation process are far behind us. There’s a shift underway, with the Treasurer’s role becoming more of a strategic partner to the CFO and wider executive team.
That shift has created the need to drastically improve the efficiency of the fundamental role of treasury, providing comprehensive accounting and reporting of a company’s cash position.
There’s a very simple solution to this problem. Data aggregation through improved multi-bank connectivity. Technology allows Treasurers to send and receive banking data in a variety of different ways, with many solutions offering a consolidated view of all a company’s financial data, in one place.
But as the saying goes, just because the solution is simple, doesn’t mean it’s easy. There are a huge number of different connectivity solutions, with varying results in terms of data accuracy and data timeliness.
In this article, we’re going to cover the fundamentals of multi-bank connectivity, to help you access the right data, at the right time, and enable better strategic decisions-making.
Why Is Multi-Bank Connectivity Important?
Regardless of which technology you ultimately decide on, there’s no hiding from the fact that efficient multi-bank connectivity is a must-have for the modern treasury tech stack. The traditional method of consolidating banking information requires substantial time and resources, for data that is potentially inaccurate or out of date.
Many companies still operate this way. Team members must login to each banking portal individually, export balances and transaction data and then manually collate this into a master spreadsheet.
This process exposes a company to a range of risks. Security risks are obviously one, which grow exponentially the more people who have access to banking portals, but the greater risk is through potential errors in your data.
Even if there are no errors, the data collection process is so time consuming that a Treasurer will only ever have access to cash balances that are out of date. For companies with multiple entities and multiple banks, it might not even be possible for them to see the breakdown of cash within each entity.
And of course, let’s not forget the ever-growing bank fees the more you use your banking platforms.
It’s not difficult to see why this isn’t good enough in 2024.
Multi-bank connectivity helps remove this friction. Rather than manually going in and pulling data on an ad-hoc basis, connectivity pushes the data from your bank to a third-party platform to aggregate your financial data in one place.
This gives Treasurers access to a consolidated view of their cash holdings, across multiple entities, without the need for manual data collection. This systemizers the process, freeing up time to be spent on high value, strategic work.
But there’s another major benefit. Because the data can be accessed so much more efficiently, analysis becomes far more powerful. A company with millions of transactions a month isn’t going to be able to pull, categorize, analyze and forecast that amount of data in a spreadsheet.
With specialist treasury software, they can.
What Are The Different Ways To Connect?
Multi-bank connectivity is the category, but there are various different specific technologies used to make it happen. Some of these have been around for decades, since the origin of the first ERPs, while others have only hit the mainstream since the emergence of open banking.
Host-to-Host
A host-to-host (H2H) connection is a direct link between a bank and its customer. Setting up a H2H link can take time and requires specialist implementation. This method allows for a high volume of data transfer, which is usually done through a Secure File Transfer Protocol (SFTP).
Essentially, a file is manually created at the banking end with all of the relevant data at that time, and this file is then downloaded and transmitted to the client’s server. This technology was first created in 1997, and there are often compatibility issues across banks and across platforms.
This file based method is widely used, and it can be a cost effective solution for companies who operate most of their business through a single core bank. However, it has some significant drawbacks.
According to IBM, “FTP-based solutions were never designed to handle the exploding need for fast, secure and scalable exchange of digital information.
Organizations can’t afford to rely on FTP as their “go to” method for demanding workloads.”
SWIFT
An alternative solution to H2H connections is to use an existing connectivity network. The most widely used is SWIFT. One of the key benefits of this is that there is far better data consistency in the network, meaning fewer failures or data irregularities than using a H2H solution.
However, there are downsides. Firstly, companies need to apply to join SWIFT, and meeting the conditions can be costly and time consuming.
Secondly, despite the network and files being more standardized, the connecting process is still a direct link between your company and the network. That means all the same costs and delays in creating the connection in the first place.
In many ways, SWIFT connectivity is an iteration on H2H, rather than a revolution. It still relies on file transfers to be pushed at specific intervals by your bank.
APIs
APIs are a completely new way to transfer data. As Deutsche Bank puts it,
“APIs provide an “always on” connection between business applications, and bank account information and payment services. They allow data to flow in real-time and on demand. In practice, this means that you can initiate and track payments in real-time, and to get instant notifications of new transactions.
APIs are also key to workflow automation based on a continuous stream of real-time balances and transactions. By contrast, traditional connectivity like host-to-host (H2H) relies on batched processing, meaning that any data exchange runs on pre-determined time intervals. Against this background, data provided through H2H always has at least 15 to 30 minutes of lag time, whereas APIs provide up-to-the-minute data.”
This means not only is data available in real time, but there are no file compatibility issues. The API interface provides a direct mirror of your banking data in your third-party platform.
With H2H and SWIFT solutions, more data means more potential points of failure. There’s a practical limit on how much data can be transferred without increasing the chance of errors or corrupted data.
The structure of the API protocol means treasurers can access all of their data, offering substantially improved forecasting and analysis abilities.
Recommended: Check out our recent episode of Fintech Corner as our very own Joseph Drambarean chats with McKenzie Knudson, Senior Treasury Analyst at Sealaska, about her team’s transition from spreadsheets to the almost magical experience of API-based treasury tech, and how it helped to centralize data, streamline reporting, and enable more strategic decision making.
The Right Platform For Your Banking Data
So far we’ve discussed the main forms of multi-bank connectivity, but we haven’t looked at where this data goes. Like most things in finance and treasury, it’s not as simple as it likely should be. There are multiple options treasurers have in how they consolidate, analyze and forecast their financial data.
ERP
ERP systems are one of the most common options for Treasurers accessing a consolidated view of their cash positions. Because ERPs are designed to provide oversight of an entire business, everything from HR to logistics to sales to procurement, they generally lack treasury specific features that a modern treasury team needs.
ERPs can connect banking data in a variety of ways, including APIs. This allows treasurers to access basic data like cash balances, but there are often significant limitations in what they can do with that data.
For example, many ERPs lack sophisticated forecasting and scenario planning capabilities. It’s often not possible to tag and categorize transaction data to better understand trends and anomalies, and lack advanced integrations such as AI and machine learning capabilities.
In short, ERPs are a jack-of-all-trades that provides just the basic functions for Treasury.
TMS
The next obvious step is to consider a treasury specific platform. Traditionally, this has been in the form of a TMS. Because these platforms have been built with treasury teams in mind, they will generally offer far more features than an ERP.
This can include forecasting capabilities and improved categorization and analysis tools. However, most TMSs use H2H or SWIFT multi-bank connectivity to consolidate the banking data.
With that comes the data matching issues mentioned earlier, with matching rates potentially as low as 20%, as well as the costly (and slow) implementation and ongoing operation of the platform.
They are also generally still limited in their forecasting capabilities compared to cloud-native, API first solutions.
“The treasury management systems that I’ve seen just don’t provide enough forecasting functionality to justify their cost.”
– Steven Peterson, Senior Manager of Treasury, Chick-fil-A
API-First Treasury Platform
Both ERPs and TMSs were first created decades ago, well before the invention of APIs and the growth of open banking. We’re now seeing new treasury platforms, such as Trovata, being built to take advantage of the vast improvements in multi-bank connectivity technology.
Being built around APIs provides a fast, scalable solution that can be implemented in a short period of time and at low cost. In addition, cloud-native software means the ability to push updates one to two times a month, rather than one to two times per year for a typical cloud-based TMS.
Full API access gives treasurers access to detailed analytics on their data that far exceed a typical TMS and ERP, providing powerful tools to make informed strategic decisions.
Connecting Your Banks
The final step in assessing which bank connectivity solution is right for your company, is to look at your own specific banking setup. Different banks offer different connectivity options. Right now, almost all major banks in the US offer API connectivity. However, some small regional banks may still be developing their API.
With your preferred treasury solution in mind, you should speak to your bank about what the process and data would look like when you implement a multi-bank connectivity solution. Some of the areas to consider should include:
- Onboarding process. How long will it take? How much will it cost, both upfront and ongoing?
- Data accuracy and timeliness. What are the typical data auto-matching rates? How frequently is the data updated?
- Transaction metadata. How much information is transmitted? Is it possible to see the complete transaction data? Is it possible to categorize and tag this data to automatically track trends and monitor specific metrics?
- Update cycle. How often is data updated? Do you have real-time visibility into cash balances across your bank mix?
- Support. Does implementation and management require professional support at an additional cost?
From there, you should have a clear understanding of the options and practical next steps to implement multi-bank connectivity into your company.
Trovata: The API-First Solution for Modern Treasury Teams
Trovata’s API-first solution provides the treasurer with the very latest in multi-bank connectivity technology. In addition to providing treasurers with 100% accurate banking data in real-time, users can see cash balances consolidated across a parent company and broken down into individual entities, geographic regions, and business units.
Enhanced cash visibility is combined with AI integrations, sophisticated tagging capabilities for automatic categorization, a natural language search function, detailed forecasting and scenario planning tools, and even the ability to send payments and invest cash directly on the platform. The icing on the cake? Trovata can be implemented in weeks, not months, with no IT support required!
All of this allows Treasurers to become true strategic business partners, like it has at Sealaska. Trovata enabled Sealaska to evolve their cash forecasting capabilities from 1 month cash planning to 13 weeks – 1 year.
“Prior to Trovata we would just hold large cash balances, so we didn’t have risks of not having enough cash in the bank. Now we’re able to have interest being earned outside of our cash accounts, which is huge for us in the current interest rate environment!”
McKenzie Knudson Senior Treasury Analyst at Sealaska Corporation
If you’d like to learn more about how Trovata could transform your treasury operations, book a demo today!
