People processed a whopping 181 billion real-time transactions worldwide in 2021 - the highest in history. We used digital wallets, debit and credit card processing, bank transfers, and whatnot daily to reach such a monumental figure. While digital payments have provided ease to consumers, corporations and banks struggle to process these payments.
Their challenge: using numerous connectivity solutions to process every kind of payment. That is a troublesome task. The visibility for all the payments and payments processes could be much higher. Plus, it has consistent recurring payment issues. Most importantly, excessive processing fees add a lot of expense to the balance sheet.
Imagine an integrated payment system that processes every kind of payment and can also be customized to match the organization’s needs. Is it even possible? How can banks and corporates do that under one digital architecture? Will it follow global payment standards and company payment policies? What about cross-border payments?
So many questions but one answer: Payments Hubs.
What is a Payments Hub?
A payments hub is a flexible IT system that offers an integrated infrastructure to process most payment types. Consider it a central payment processor that approves and transmits bank payments, mobile transfers, ACH payments, enterprise resource planning (ERP), and more.
Large corporates are increasingly using such integrated payment systems to:
- Standardize and streamline business operations
- Gain centralized control
- Build their own payment processing services that combine multiple systems and payment channels
Key Components of a Payments Hub
The payments hub is a one-stop solution that solves all the challenges of ineffective payment processes. Let’s examine some key components and understand what a payments hub offers:
- Centralised payment with the ability to accept credit cards and ACH on a single platform
- Fraud detection
- Audit trails and payment history logs for regulatory compliance
- Risk management
- Simple addition of complementary digital payment services
- Agility for bill collections
- Seamless merchant services
How Does a Payments Hub Work?
Think of the payments hub as a high-tech link between banks, ERPs, treasury management systems (TMSs), and other financial systems. Banks and large corporate organizations leverage a payments hub to transfer and validate information efficiently across various systems. It collects all kinds of payments from different tools and performs bank transmissions while also carrying out necessary conversions of payment files.
Why Do You Need a Payments Hub?
The adoption of a payments hub has become a global trend, and banks and corporates are using it to solve tricky cash management problems. Some core benefits of a payments hub include:
- Standardization: A payments hub strengthens the workflow and increases automation leading to greater visibility in processes.
- ISO 20022 Compliance: It lets you follow global standards and implements domestic policies for transferring all financial information.
- Fraud Prevention: An AFP report estimated that 71% of organisations were victims of fraud in 2021. The payments hub offers screening to minimize cybercrime risks.
- Cost Effectiveness: A payments hub can significantly reduce the cost of managing all digital payment methods.
How Do Banks Benefit from Payments Hubs?
Successful banking models have embraced digital payments. The integration of payments hubs takes banks, credit unions, and large corporations forward into the world of automation. It reduces the issues related to cash flow management by offering a centralized source of information leading to efficiency and profitability.
- Increased Automation: A seamless source of truth enables a great way to reduce complex manual processes and move towards automation.
- 360-Degree View of Real-Time Payments: With greater visibility, banks better leverage every transaction.
- Boosted Profitability: Payments hubs offer open APIs and open banking, which has the potential to generate profit opportunities worth $9 billion.
How Do Businesses Benefit from Payments Hubs?
Not only banks, but businesses also require a payments hub to ride the fintech wave. Payments hubs offer an integrated payment system that can enhance connectivity with other banks offering better member services.
Some benefits for businesses include:
- Cross-Border Payments: A payments hub offers screening and approval for cross-border payments while preventing unsanctioned payments.
- Enhanced Multi-Bank Connectivity: Large organizations with multiple-bank relationships get secure connectivity while eliminating the need for multiple ERP (Enterprise Resource Planning) platforms.
- Improved Cash Flow Management: Payments hubs offer cash flow forecasting for effective liquidity management.
How to Set Up a Payments Hub?
Digital payments aren’t just a mere trend, but are here to stay for a long, long time. About four in every five people in the United States use digital payments today. At the current pace of growth in the financial sector, payments hubs will play a crucial role in streamlining internal processes of financial services. They will transform the payments processing industry with its integrated payments solution. Moreover, they will also pave the way for increased adoption of innovative digital payment trends. The best part is that switching to a payments hub isn’t all that tricky!
Banks and large corporates can transform and automate their payment systems using modern payment methods by iCG. Contact us today and build your payments hub.
