From XU Magazine, 
Issue 17

Better than banks: Adding efficiency in payments

With fintech start-ups proving the old way is not the right way, banks are under pressure to reimagine business finance. But what about payments? Here’s how Soldo is redefining a tenet of banking...
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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In the traditional relationship between banks and businesses, banks play two roles:

Supplying the core resource any business needs – finance

Enabling the transfer of funds from one point to another – payments

What banks do, hasn’t changed much over time. As a result, businesses accept that there are intrinsic limitations on what banks can do for them.

But recently, fintech start-ups have started to deliver better alternatives to financing from banks. Companies like Iwoca, Satago, and Liberis provide flexible, agile solutions that have proven attractive to businesses.

There’s been less transformation in payments, which – for most businesses – still represent a bottleneck in their processes. What banks do today is simple: they transfer funds from one account to another. For businesses to make a payment, the bank supplies an account then moves and tracks funds from the company account to a supplier’s account.

When it’s time to turn this payment into an expense in its P&L, more information is needed. This context of the purchase helps accounts teams to justify spending. But banks have drawn a line – deciding that helping businesses provide this information is outside their remit.

Too little information

There’s more to expenses than a statement line. But the information banks provide post-purchase is limited. Let’s look at a few payment methods and the data typically in attendance:

Banks transfers: Usually classified based on what’s useful for the bank, they have (at best) one line of text for explanation.

Credit or debit card payments: Including a short (often cryptic) description of the vendor, the date and the amount.

In both cases, the information associated with the payment isn’t enough to correctly book an expense. The addition of rich data is needed – including, but not limited to, the expense category based on the company’s classification criteria, proof of payments, and descriptive notes. The expense record remains incomplete, and manual tasks await the employee.

• After payment, the employee will have to:

• Keep a receipt in their wallet for two weeks

• Write the reason for the expense on the back of the receipt

• Transfer this information manually into a spreadsheet

• Include the receipt in an envelope

• Deliver everything to the accounting team

In turn, the accounting team will have to:

• Take the spreadsheet with the data

• Validate that the purchase is in line with policies

• Verify that all the additional information requested is present

• Transfer the information through a semi-manual process to the accounting system

The employee usually adds essential expense information days after payment. In addition to possible mistakes, data is in a format that doesn’t integrate easily with downstream business processes, meaning more manual work for administrators.

The bank doesn’t capture the right information at the point of purchase, but it also doesn’t make data available in a format that drives process automation. The reasoning behind these omissions may be perfectly rational. But, while they lack the right support, banks aren’t the right partners for businesses.

A better way

Soldo was founded with the vision of a ‘bank’ that could be the perfect partner for businesses, identifying two areas that were critical to making it work:

• Before the payment: Creating an account more aligned with business needs

• After the payment: Making it possible to capture the information needed to streamline the transformation of payments into expenses at the point of purchase

Looking at how businesses operate, there’s a growing need to enable multiple people or departments to spend company money. In most instances, it helps staff to do their job. Having a single current account – as banks typically provide – creates the following issues:

A lack of flexibility to delegate spending to as many people as needed (including internal staff and external contractors), as depositing company funds into the account means increased risk when sharing access.

A lack of control, with a single account including all transactions from different enabled users, making it difficult to reconcile payments and assure compliance with company policies and approvals.

Soldo enables multi-user accounts: bank accounts that can be divided virtually into sub-accounts, and linked to one or more cards for each employee, contractor or expense centre. The structure provides a rich set of specific pre-emptive controls covering each user – minimising exposure to overpayments, fraud, etc.

After the payment, Soldo:

• Makes sure each transaction has the required information (in the correct format and with the ability to integrate with other systems), to ensure the payment can be turned into an expense as automated as possible.

• Comprises of a technology stack and product layer that enables this to happen at the same time as the transaction.

For most businesses, there’s an incredible level of inefficiency spread across different functions. But what’s most striking is that these inefficiencies are often considered inevitable because of low expectations of what the banking system can do for businesses.

Before long, companies will demand from banks what they ask of other players in their ecosystems, actively looking for efficiency and effectiveness. New partners that can improve on what banks are doing, and who know they must expand beyond what banks traditionally do, are already here. It’s time for businesses to open their minds to a better way.

Why leave it there?

Learn more about smarter spending for simpler expenses

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