Why Interoperability Challenges Banks with Their Purchase to Pay Solutions

I Goggled the word Interoperability and what came back was the ability of health information systems to work together within and across organizational boundaries in order to advance the effective delivery of healthcare for individuals and communities.  Quite a mouthful, but an admirable goal nonetheless.  In fact, to be interoperable means to be able to work together, not to be identical

To be sure, there are quite a few examples of interoperability in the financial world because parties got together and realized it was in the interest of the banks overall to have some third party service provider manage the technology, rules, hardware, security, etc. Examples include credit cards and ATM networks.  Interoperability with ATMs allows consumers to use many different ATM machines globally.  If you only could use your bank’s machines, it would be very limiting.  So small banks pay much more in tolls for their customers to use ATMs, but it is a service they have to offer.

Interoperability is a complex subject.  This is not about creating open APIs or screen scrapping tools to exchange data.  Essentially when it comes to Purchase to Pay, it is about enabling buyers and sellers to use their existing infrastructure without having to log in to other networks to send and receive trading documents (Purchase orders, invoices, shipping notices, acknowledgements, payment advices etc.)

E-invoicing networks are perfect examples where interoperability is so challenging.  Many times, a vendor may not provide the interoperability to work with a company’s customers and the various B2B and supplier networks they deploy.  Most networks aren’t open (even if they’re based on open XML standards) in large part because true global interoperability agreements are yet to be defined. Today, the concept of interoperability is really mostly about marketing vs. reality.

Interoperability around the einvoicing space is not a technical challenge.  Those details can be figured out.  It’s a commercial one related to how you compensate vendors in an era where suppliers do not pay fees.  Imagine credit cards with no interchange to provide back to issuing banks.  What would be the incentive to send transactions into the grid?  Same with einvoicing, if I dont charge suppliers but my suppliers use other networks to send invoices, how will that work?

So how does this impact banks and their purchase to pay strategies?  Many banks are building a suite of offerings working with FinTech, for example in areas such as:

  • Accounts Payable automation
  • Dynamic Discounting & Reverse Factoring Programs
  • Card programs
  • Working capital platforms
  • Cheque to ACH conversion

A bank wants to offer financial supply chain services (payment, finance, cash management, remittance details, currency exchange, risk management, etc.) to meet the digital world.  But banks find that they are challenged in rolling out AP automation or payment solutions because nothing ties suppliers into a network where they can be enabled for different solutions.

As banks roll out different programs and attempt to onboard suppliers, they find you can only get a small percentage of suppliers on pcard due to interchange rates.  Therefore you may want to turn around and try to get the other suppliers on a cheque to ACH payment program with a vendor like Bottomline and their Paymode product, or a working capital platform like C2FO, but none of these work together.

All of this makes in one bankers words, “for a very clunky environment”.

Not an easy problem to figure out but if we truly want a digitized world, we will need to make progress.

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p.s  I will be producing the 2016 State of Supply Chain Finance Industry guide to provide an independent source for anyone determining how their company should proceed with supply chain finance and working capital solutions, both for their supplier ecosystem as well as their customer relationships. If you are interested in becoming a Featured Sponsor, please contact me at dgustin at globalbanking.com

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