In today’s banking age, Host-to-Host (H2H) connectivity between a bank’s corporate customer and the bank is no longer solely the prerogative of the largest businesses or government entities.  Institutions of any size are now looking to reap the benefits of automated connectivity to their bank for direct payment upload and processing.  

Such institutions are increasingly looking to carry out the heavy lifting of processing their payment activities within their own ERP, payroll, purchase order and or invoicing systems. When completing these tasks in their internal systems, which includes authorization and release processes, payments need to be sent quickly to their bank for automatic processing to avoid tedious manual upload processes or the re-verifying or re-authorizing of payments through online portals.  Further, institutions expect confirmations from the bank for successful transactions to update their internal systems automatically, and exceptions to be highlighted in near real-time or even addressed by their bank as a service.    

Adapting in the digital age

Corporate banking businesses must adapt in order to accommodate increasing customer demands or else face the prospect of reducing market share, ever-reducing revenues and, lost opportunity.

If a bank loses the opportunity to process a customer’s transactions, then they also run the risk of losing future business in the form of cash management, the credit line, advisory services, etc.  As such, it is becoming an increasingly competitive market for banks to avoid loyal customers being enticed away by the allure of new payment market challengers who seem to offer business service innovation and agility.

However, in today’s business climate, careful consideration goes into every new investment decision. Every penny spent must demonstrate evident Return on Investment (ROI), and with many of the new H2H on-boarding customers being smaller businesses, the cost of on-boarding and timelines for ROI become a significant barrier to success. Because of this, costs and time to revenue must be kept to an absolute minimum. What is required of a bank’s H2H solution therefore to efficiently service market needs in the digital banking age?

Next Generation H2H: going beyond files and payments

Until now, H2H has always been about the exchange of files to and from the customer site. This is no longer the case in the digital banking age. Corporates and banks are more integrated than ever before, with delivery through streaming and web services offering a more interactive linking of the parties. The H2H channel is also no longer simply a dedicated pipe for payment and cash transactions only. It is a direct communication channel to the corporate for all transaction types. Increasingly, corporates are seeking to send transactions related to trade & supply chain finance, securities processing, account management, and even credit products.  Because of this, any H2H solution needs to be flexible enough to support a multitude of transaction types and offer a range of connectivity options, from files to web services.   

Next generation H2H is based on the provision of a range of functional capabilities, that when combined, help banks to significantly reduce the time and costs of on-boarding new corporate customers.  H2H is the linking together of a number of distinct business and technical functions, that each play a critical role in the process of the solution. It has never been just one large, indistinct system in a bank. In next generation H2H, each component in the chain is maximised for speed and flexibility. This results in a combination of best-of-breed components and the ability to add in newer, optimised functions into the processing chain when available. The less processing and software imprint required on the customer site, the better.

Getting customers on-board quickly

If banks want to on-board corporate payment flows from different sized and shaped corporates with ease and speed, create satisfaction for corporates and ‘tie to revenue’ for the bank, it is critical that banks don’t dictate the format they require from their prospective customer.  Corporate customers do not want to have to make changes to what they output; to them, it is the bank’s problem, and if the bank wants their business, they should deal with format issues. As such, the bank’s next generation H2H must be able to transform incoming data from any format into what is required by their internal processing engines. Furthermore, it is extremely likely that the bank will be (or should be) better equipped to deal with format issues rather than the corporate customer. After all in final analysis, banks will be wanting to take on more corporate payment flows than corporates deliver to many banks. 

A large number of formats encountered will be based on various published standards such as SWIFT MT, new ISO 20022 pain and pacs messages, older EDIFACT formats, SAP or Oracle standards, etc. The more of these message standards, as well as transformations to and from them, that can be delivered out of the box, the more efficient the H2H platform will be at on-boarding new customers. Pre-built & supported message standards saves both time and money.

It is no longer possible to expect one process to accommodate all customers. Next generation H2H must be able to segment the market by defining specific processes and orchestrations for a set of customers, or even for an individual customer. At the core of next generation H2H is the constant development and deployment of function, be it for format transformations, validation, orchestration flows, or enrichment services, etc. The key to the success of the next generation H2H solution is the speed with which these developments can be carried out and deployed successfully, so banks and their smaller corporate customers can start to take advantage of the digital payments age.