In today’s financial services reality, competition and innovation are increasing like never before. Banks are now faced with many dilemmas, including maintaining the current SME customer base while attracting new business partners. To do this, banks need to focus on improving customer relationships, offering better risk assessment and lending opportunities, while helping entrepreneurs better manage their operations and improve their business outcomes. Consequently, they need to understand well and meet the needs of their customers.
Let’s take, as an example, an entrepreneur named John, who manages his family business and has problems monitoring its liabilities and receivables. John is worried that he has to constantly monitor his enterprise’s liabilities and receivables, rather than focusing on growing his business. It is a laborious task over which, in addition, there is no full control. Such a problem is common among SME owners.
Let’s analyze the situation and divide it into stages.
Stage 1: John, like the vast majority of small and medium-sized enterprises, continues to issue invoices manually; regardless of whether he uses Word or Excel, prints, scans, and then emails them to his contractors. This is a very old-fashioned and time-consuming billing method. Moreover, error-prone.
Step 2: After generating the invoice, John also needs to add all these invoices to his accounting (if using the platform) or send them to his accountant.
Step 3: Once all the invoices have been submitted to accounting, John will need to validate these transactions against his bank statements to have a clear picture of which invoices have been paid and which are still pending payment. The accounting platform for managing invoices not connected to John`s business account (s) is tedious and time-consuming to handle.
For this purpose, an accounting platform or remote accounting would allow John to, for example, upload bank statements, he could send a CSV or Excel file with all transactions from all different bank accounts, and monitoring payments would be easier.
In what direction might John’s facilities for managing his financial transactions go further? As open banking solutions are deployed, connections to bank accounts will be supervised and authorized by the user, and new technologies and techniques for authorizing those connections will be subject to strict protocols.
So how can banks now help their SME customers if all their data has been transferred to their accounting platforms?
The thing is that banks know their customers’ transactions, but the categorization of transactions is still a problem for them. They do not know what information belongs to accounts receivable or payable, and this data is important as it helps banks better assess the business condition of SMEs.
Imagine a scenario where we could just reverse the equation and enter accounting data into the bank, giving the bank access to data on receivables and payables.
As a result, banks could offer their clients from the SME sector various benefits.
Time: By entering external invoicing data into the bank, first of all, it would improve John’s efficiency and thus save John’s time. With Business Finance Manager (BFM) STRANDS tasks can be automated and new added value can be provided. The fact that John manually compares his transactions with the invoices has no value. He typically spends six to seven hours a week doing these tasks. By using a solution such as BFM, John saves a significant amount of time, which he could then devote to other important duties related to the running and development of his business.
Control: The bank would offer John to control financial transactions by having access to invoices and the ability to reconcile them. This way, the bank can automatically judge whether or not invoice payment is likely to be late. As a result, John controls his liquidity and cash flow and anticipates and secures payment problems.
Smoothness and Personalization: John gains insight into how his clients behave when dealing with comprehensive information about his transactions in one place. In turn, the bank conducts a credit assessment of John’s customers and can then offer John and his customers better services tailored to their needs.
STRANDS partners, online accounting platforms in Europe, use their open and public APIs so that bank customers can connect their bank accounts to their accounting platform and vice versa. By using OAuth 2.0, banks can access this information. The BFM STRANDS solution can send all these invoices to the BFM database, which is located at the bank’s premises, to have access to all data.
In addition, STRANDS’ API Hub solution is a simple interface that uses open banking to securely connect multiple external services in one place. It offers clients an overview of their finances and the ability to connect to third-party services.
STRANDS not only aggregates data from these platforms but also transmits and updates it consistently at the bank’s premises. STRANDS ensures synchronization of both systems (bank and accounting platform).
How is it done?
After the process of unifying invoices with transactions at the bank, these data are transferred to the accounting platform – which updates the invoice, determines whether and when it has been paid – as well as other transaction details for these payments.
Thanks to the cooperation of STRANDS and Mastercard and the use of machine learning, it is possible to obtain more information from each invoice, and thus enable John (each owner of a business in the SME sector) to better manage cash flow and run his business more efficiently.
So all invoices that are processed – be it from an external accounting platform or from STRANDS BFM – will include an easy payment option that will be enabled for each invoice. Every time these invoices are digitally sent to John’s customers, customers can simply click a button and pay that invoice right away.
The aim of the combined efforts of CRIF and STRANDS is to support banks in building effective relationships with their clients from the SME sector by offering value-added services based on modern open banking solutions. Today, we focus on BFM – Business Financial Management to improve the processes related to SME financial transactions in a bank using a modern application.
We invite you to the Partner webinar devoted to Business Financial Management (BMF) Strands – September 16, 2021, at 11:00 CET.
CRIF is a leading provider of credit information in Europe and one of the key entities in the world, providing integrated services and solutions in the field of business, commercial, and risk management information.
As an expert in Big Data, Artificial Intelligence, and Machine Learning, Strands has been creating highly customizable digital transaction management software for leading financial institutions around the world since 2004 and empowering people to manage their money more intelligently. The company Strands has completed over 700 implementations so far.