SME Banking and Invoice Aggregation: How Banks Can Attract New Businesses

by Javier Castillo on Nov 8, 2019

In today’s complex financial services industry, competition and innovation are growing like never before. Banks are now faced with many dilemmas including holding on to their current client base while attracting new businesses.

In order to do so, banks have to focus on improving their relationship with their SME clients, offering improved underwriting and lending capabilities, helping them better manage their business, and boosting their business performance. As such, they have to truly understand and address the needs of their SME clients.

Take, for example, an SME that has an important pain point to solve. In this case John, who is in charge of his family-owned business, is having issues with his accounts payable and accounts receivable monitoring.

 

 

SME Banking Journey_StrandsJohn worries about constantly having to stay on top of and reviewing his company’s accounts payable and accounts receivable, as it proves to be a laborious task that he doesn’t have full control over. His scenario is a common one. To dig deeper and understand his issue, let us break it down in stages.

Stage 1:

John, as well as a huge majority of SMEs, are still generating invoices manually, whether it's using Word or Excel, printing, scanning, and then sending them through email. This is a very old-fashioned and time-consuming way of accounting.

And, because those platforms and processes are not error-proof, mistakes can be made and issues can arise frequently.

Stage 2:

Once the invoice is generated, in whichever format, John would typically have to also add all those invoices in his books. Most likely he is using an accounting platforms that helps him with that, however, he still needs to manually upload all those invoices into those accounting platforms. 

 Stage 3:

Once all the invoices are collected in the accounting platform, John would need to reconcile those transactions against their bank statements to have a clear understanding of which invoices have been paid and which ones are still pending.

In order to do so, his accounting platforms would allow him the possibility of uploading bank statements. He could upload a csv or excel file with all of the different transactions from all the  different bank accounts. Some also allow John to connect his bank account(s) into their accounting platform. 

 

As we continue to move into Open Banking, connecting to bank accounts will be supervised and authorized by the user, and new technologies and techniques for authorizing these connections will follow strict protocols. 

However, for many countries, Open Banking is not a reality yet. As such, the only option that exists in these countries is to upload transactions into the accounting platforms by granting access to the bank accounts by using a user’s bank account credentials for their company.

Once the transactions from whichever channel reach the accounting platform, then it's John's task to perform that reconciliation manually. There has been some progress in trying to automate that task but it is still a very manual process and as a consequence, it can be a much more complex task than John envisioned. 

So, how can banks currently help their SMEs if all their data has been moved to their accounting platforms?

The issue at hand is that banks still have the transactions from their clients but they have no visibility or transparency as to what these transactions refer to. They don't know what information belongs to account receivables or account payables and this data is meaningful because it helps banks perform better assessments on the health of their SME customers. 

Imagine a scenario where we could just reverse the equation and bring the accounting data into the bank, by which the bank would then have access to the accounts receivable and accounts payable data.

With that, banks could offer their SME clients various benefits. These include:

  1. Time: First of all time or efficiency would be improved by bringing the external invoicing data into the bank. Strands’ BFM would help them to automate several tasks and deliver a new added value. There is no value in John manually reconciling his transactions against his invoices. In fact he would typically spend six to seven hours a week performing these cumbersome tasks. By using a solution like BFM John is saving a significant amount of time that he could then devote to other important duties of running a business.

  2. Control: The bank would offer John control by having access to the invoices and being able to reconcile them. As such, the bank can now automatically assess whether the  invoice payment is going to likely to be delayed or not. Thanks to that, John can stay on top of his liquidity and cash flow as well as anticipate payment issues.

  3. Liquidity: John gets insight into how his customers behave when it deals with collections. In turn, the bank performs better credit assessment regarding John's customers and could then also offer better rates depending on who those customers are. 

SME Banking Challenges_Strands

 

Today, Open APIs allow third parties that are also working with businesses to leverage that data in order to perform added value services on top of the accounting platform. 

Strands partners with the majority of the main online accounting platforms. They leverage their Open and Public APIs so that bank customers can connect their bank account(s) into their provider, and vice versa. By using OAuth 2.0, banks can get access to that information. 

Strands can upload all these invoices into the BFM database, which is sitting on the banks premises, in order to have access to all the data.

In addition, Strands’ API Hub solution is a simple interface which leverages Open Banking to connect multiple external services securely in one place. It offers customers an overview of their finances and the ability to connect to third-party services.

SME Banking Account Aggregation_Strands

 

When it comes to the accounting software, Strands currently has connections to Quickbooks, Xero, and Sage.

Strands not only aggregates data from those platforms but also uploads and updates it consistently in the bank's premises. Strands keeps both systems (the bank and the accounting platform) in synchronization. 

How is this done?

Once reconciliation between invoices and transactions has been performed within the bank, this data then goes into the accounting platform - updates the invoice and specifies when it was paid - as well as other transaction details for those payments.

In the end, John can focus on running his business while having his financial adviser connecting into his accounting software and performing the accounting on his behalf, all while keeping both both systems fully synchronized.

Another pain point John could be experience could revolve around invoicing. Once an invoice is issued there is no way to determine whether that the invoice is likely to be paid and when.

 

Strands is working together with MasterCard to enable faster collections of invoices. With the Strands-Mastercard collaboration, and using machine learning insights, it is possible to extract more insights out of that invoice and thus allow the SME to better manage their cash flow and operate their businesses more efficiently.  

In addition they provide tools for facilitating that transaction between John and his customers. So all the invoices that are processed - whether from the external accounting platform or from the Strands BFM - will contain a payment gateway that will be enabled from every invoice. Whenever these invoices are sent digitally to John’s customers, the customers can simply click on a button which then redirects them to a virtual point of sale where they can pay that invoice right away. 

Strands’ aim in the long run is to help banks empower their SME clients by offering value-added services and financial guidance.

 

 

Would you like to know more about how invoice aggregation in SME banking can help banks attract new customers?

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About
Javier Castillo
Javier Castillo

Head of Growth at Strands, Javier is an expert in digital marketing, communication, and business development. He is 100% focused on results, loves a challenge and uses data to push performance ever closer to perfection.

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