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Becoming the dominant financial OS

A magnified view of how embedding payments can improve invoicing, accounting and cash flow tools

Max Cutler
January 9, 2023

Many players are striving to become the next big ‘all-in-one’ financial management operating system. To deliver the most complete product possible and build a winning offer, you’ll first want to understand what’s possible beneath the surface.

The workflows underpinning money movement

Let’s magnify what happens when one pays a business expense or invoice. The moment a payment is made, the transaction kicks off a sequence of processes & workflows that finance teams must take care of: data entry, validations, and the like. The funds themselves move, but information must also flow.

Back in the day, these processes were handled manually and didn’t provide much opportunity for analysis or high-level transparency into a firm’s financial situation. If you’re reading this, you’ll know better than most that a plethora of software solutions have since been developed to fix this problem. Software like Intuit Quickbooks or Sellsy help to better organize money movement and information around it, but until recently they limited themselves by hyper-focusing on one workflow like accounts payable/receivables or cash flow management.

Now, with open banking and embedded finance, software companies can vastly expand their offering by connecting to other products in novel ways. Namely, embedded finance makes it easy to connect finance tools via deep integrations while also simplifying individual workflows and payment transactions.

Placing the lens on financial management

At Swan, we’ve seen firsthand just how beneficial embedding banking products can be for our customers, especially those who provide financial management software. Seamless integration of payments with the wider tech stack, which tackles cash flow visibility and management, can be a total game-changer. Money moves smarter, and with it, valuable information that leaders need for analysis and planning.

If you want to learn more about how money moves today, read on, as we explore how financial management technology providers can embed fintech features to better serve their customers.

How embedded finance can help with invoice processing

Business transactions can be largely split into two categories: Spend and Expenses. Spend refers to payments for things related to the overall business (supplier bills). Expenses are typically payments made by individuals or small teams for items that come up in the course of day-to-day operations (a taxi, coffee and croissants for a prospective customer).

Let’s take a look at a hypothetical accounts payable use case. Since most of you reading this likely work at a technology company, let’s say that this payment is to be made to the vendor providing your company’s CRM software.

What happens? An invoice is generated by the vendor, laying out what is owed by the business customer. At this stage of the payment processing flow, technology comes into play. An invoice management solution is usually deployed. Its function is to pull information automatically from the document, mostly about how much is owed, for what good/service, and to which account the money should be directed.

💡 The automatic retrieval of invoice data is made possible using Electronic Data Interchange (EDI) standards that were first developed in the 1960s by the major auto manufacturers in Detroit, USA.

This is quite a nice automating step on its own, however, by adding embedded banking features to the mix, the complete processing of the invoice can be orchestrated automatically from the financial management software. The payment is made right from the finance cockpit, frictionlessly. In other cases, without the enablement of embedded finance, the payment needs to be coordinated with partner banks and goes through a highly unoptimized approval process that wastes time and adds opacity.

How embedded finance can help with reconciliation and reporting

The other important workflow within the business transaction flow that embedded finance touches on is internal reconciliation and accounting. Using traditional tooling, finance teams often have little to no visibility into the overall cash situation of the business without time-intensive manual reconciliation between accounts and ledgers.

As an example, when an invoice is received, processed, and ultimately paid, there is no automatic communication between the firm’s bank account and the internal system. The finance team would see the invoice, and understand that it had been paid, but would not be able to 100% verify that the cash had left the company account. They’d have to log in separately to an online banking portal to check the cash balance of the company. Thereafter, a manual and offline analysis of the business’s cash flow situation could be carried out.

Open banking takes a meaningful but ultimately intermediate step toward solving this visibility dilemma. But embedded banking is better 😉. With open banking (via an AISP license / Account Information Service Provider), companies can use their banking provider’s exposed APIs to gain visibility into account activity. This view can then be integrated into the cash flow management product and brought to market. So far, so good. But traditional banks don’t always work with and integrate APIs in an optimal way, and more importantly, the payment orchestration open banking provides has serious limitations.

With Open Banking, bulk transfers aren’t possible, companies can’t make use of SEPA rails (so they have to connect to each individual bank they wish to transact with), and authentication is far less seamless and secure.

Embedded finance, to use the perhaps tired metaphor, kills two birds with one stone. Payment orchestration and fund transfer can be neatly nestled into the product offering of nearly any financial management software. Embedded finance does not just make the movement of money itself more optimized. It also touches on working capital and cash flow visibility by linking up with these tools directly.

How embedded finance can help with financial intelligence

Embedded banking APIs allow those responsible for cash management to understand on a per-transaction and a per-vendor basis what’s coming in and what’s going out money-wise. Again, since the payment orchestration (either via card or SEPA transfer) is already integrated with the financial management software solution, data on what was paid, how much, for what, and so on is automatically pushed to the working capital management solution, potentially saving hours of manual labor and improving visibility.

In the current economic environment, carefully managing working capital and enabling transparency into how funds are moving in and out of the firm has taken on even more importance. With tighter runways and mandates of profitability, leaders need the strongest possible hold on their company’s financial situation, both in the present and into the future. Let’s take a look at a company that’s already taken advantage of embedded finance to quickly transition their offering into an all-in-one product suite!

Agicap offers seamless payments via Swan

Agicap built a killer core product and became a leading European cash flow management software. They then connected with Swan to quickly and easily embed banking accounts into their software. The result is an even better, much more efficient experience for their customers. Since Agicap’s software is now directly linked with payments, data is easily accessed and stored, boosting visibility and saving time.

Users can now pay vendors, organize supplier relationships, and visualize their cash flow situation, all in one place. And all those flows are seamlessly orchestrated by API!

Oh, the places you’ll go!

Leveraging the power of embedded finance is the key to covering all the bases of the financial management workflow for your customers. The transaction layer is handled by automating payments to vendors within the existing financial management solution, removing the painful process of communicating with partner banks and other stakeholders. Record keeping is covered, via the use of APIs to seamlessly update the business’ internal ledger with payments data powered by embedded finance tooling. Finally, users will enjoy more robust visibility into working capital and cash management needs, redefining financial intelligence for the next generation of data-driven companies.

These evolutions in tooling sum to a significant step forward for finance teams. Time spent on manual data entry and other repetitive tasks is slashed to near zero, which emancipates stakeholders to focus on high-value strategic work and thinking. The days of accounting being a business cost center are numbered in this embedded finance enabled world!

We’re still in the early days of embedded finance, so the future development of financial management promises to become even more robust. Embeddable banking features will multiply and improve — that’s exactly what we’re working on here at Swan! You can already integrate accounts with SEPA transfers and debit cards into your product, and update financial info in real-time with crucial and granular payments data. Updates like this make Banking-as-a-Service a revenue driver rather than a cost center.

If you are considering embedding payments into your offering, get in touch with one of our experts today to see how Swan can help.

Max Cutler
January 9, 2023
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