Despite the rise of new technologies, many small and mid-sized businesses continue to rely on outdated, manual processes for vendor payments and payroll.
Common inefficiencies include:
These inefficiencies lead to delayed month-end closes, limited visibility for informed decision-making, and increased stress on teams, leaving them frustrated and demotivated.
This article explores the latest technologies designed to simplify payment and reconciliation processes, offering a detailed comparison of available solutions. It provides valuable insights to help you make informed decisions when choosing the ideal bulk payment or accounts payable automation tool. Whether your focus is on the size and complexity of your business, budget, or long-term goals, this guide will equip you with the knowledge to find the best fit for your needs.
Open banking and E-money/Payment accounts represent two innovative approaches to automating payments and transactions, each with its own set of benefits tailored to different business needs.
Each method is governed by distinct regulations that determine who is authorised to provide it, offering varying levels of protection for users.
Open Banking enables third-party providers to securely access banks and financial institutions using standardised APIs. This innovation has paved the way for new services that, while often not requiring direct FCA authorisation, deliver enhanced user experiences (UX) and streamlined payment initiation processes. These services seamlessly integrate with both upstream and downstream systems, offering greater efficiency and usability.
Crezco, Apron (for Xero and QuickBooks users), and Yavrio (for Microsoft Dynamics 365 Business Central users) harness the power of Open Banking to deliver efficient bulk payment solutions. Crezco streamlines B2B payments by directly connecting bank accounts, enabling fast and seamless transactions. It also simplifies client payments with Open Banking-powered payment links. Similarly, Yavrio enhances domestic vendor payments and leverages Open Banking for smoother bank account reconciliations, offering a comprehensive solution for financial management.
The limitations of Open Banking solutions largely stem from their original intent and the lack of widespread adoption by most banks. Initially designed to democratise retail financial services and support micro-businesses, Payment initiation via Open Banking has struggled to meet the needs of businesses managing more than a handful of daily transactions. Banks mandated to provide Open Banking services for retail clients have shown little enthusiasm for utilising the same technology to drive innovation in corporate or business banking sectors.
The limitations of Open Banking include:
Due to these limitations, standalone solutions for AP automation through Open Banking have achieved only limited success. For instance, Comma, a trailblazer in B2B Open Banking automation, was acquired by Weavr in 2023 to integrate its capabilities with embedded payments.
E-money and payment accounts are digital alternatives to traditional bank accounts designed for payments and financial transactions. Popularised by fintech companies like Wise and Revolut and FX brokers such as Ebury and XE.com, these accounts provide a superior user experience and more competitive fees, particularly for cross-border payments.
By leveraging proprietary API technology, payment automation providers leverage these accounts to streamline payment and reconciliation processes, bypassing the constraints of Open Banking. Solutions such as HedgeFlows, Tipalti, Modular AP by Nook, and Telleroo are built on the foundation of e-money or payment accounts, delivering efficiency and flexibility for modern financial operations.
Most of these solutions are primarily designed to simplify domestic bulk payments for businesses, streamlining processes like payroll and supplier transactions. While they can handle occasional international payments, they often lack robust support for managing foreign exchange rates or reconciling payments in multiple currencies.
HedgeFlows is designed for businesses with international operations, offering a seamless solution that integrates both domestic and cross-border payment automation with cash and risk management across multiple currencies. Streamlining the international payment process helps minimise exchange rate losses and simplifies complex transactions. Ideal for managing high payment volumes, supporting multiple currencies, or handling intricate global payments, HedgeFlows eliminates the need to maintain physical bank accounts in multiple countries.
Both types of account can help receive and send payments but differ in how users can hold their funds:
- E-money Accounts: Allow you to hold funds indefinitely but do not accrue interest. These accounts are often used by FX brokers or solutions offering spend management.
- Payment Accounts: Designed to hold funds temporarily to process instructed payments. Businesses typically transfer funds for bulk payment processing or send the funds collected from their clients back to their main bank account.
Unlike Open Banking solutions, E-money and Payment accounts can only be provided by businesses that are explicitly regulated or authorised by the FCA. This sets a higher standard for those eligible to offer these accounts, ensuring enhanced security. Providers must adhere to strict requirements, including two-factor authentication and robust measures to protect customer funds.
However, it is also important to understand that your solution provider may offer e-money/ payment accounts as an Agent, in which case they are using accounts held by another institution holding an EMI or PSP license. This nuance is particularly important for cross-border payments, where clients often require expert support in addition to automation solutions and where receiving such support from a third party can be challenging.
Choosing a payment account-based solution and using Open Banking to fund your payment account offers a powerful blend of security, convenience, and efficiency. By keeping your funds safely stored in your bank account, this approach addresses common security concerns associated with e-money wallets while also potentially allowing you to earn interest. Open Banking also lets you securely initiate funding payments and fully automate the reconciliation process, streamlining financial workflows.
Open Banking supports single payments of up to £1 million, making it ideal for businesses handling large transactions. This process minimises risks, such as manual errors, while ensuring full control since you authorise payments directly through your bank account. With Faster Payments, transfers typically arrive a few seconds or minutes after initiation.
Platforms like HedgeFlows further enhance this process by monitoring initiated transfers and providing alerts in the event of unexpected delays, ensuring a seamless and reliable payment experience.
Payment accounts are also a powerful bridge for automating international payments. Whether your payment run is a mix of domestic or international payments or 100% cross-border payments, bulk payment automation such as one offered by HedgeFlows can save money on FX and payment fees and reduce up to 90% of time and effort spent on manual tasks such as buying FX, preparing remittance emails, and reconciling in general ledger with accurate FX rates and P&L.
Discover how HedgeFlows can transform the way you manage global payments and foreign exchange with ease and efficiency.
Our innovative solutions are designed to simplify financial operations, reduce risks, and save you valuable time. Whether you're looking for tailored support or cutting-edge tools, our team of experts is here to help you every step of the way. Take the next step towards smarter financial management - explore our solutions today or get in touch with our specialists to discuss your business needs.