How embedded accounts can revolutionize rental management

Implementing embedded finance to improve rental management processes, using dedicated IBANs

Max Cutler
February 28, 2023

The marriage between rental management software and embedded finance is truly a no-brainer. For those who manage properties, one of the most significant pain points is, naturally, the collection and processing of lease payments from tenants. Existing solutions from developers of rental management software have improved visibility into rent payments, but by partnering with a provider of embedded banking, the entire process can be optimized.

Let’s dive deep into how processing rental payments work today. We know that methods of payment collection vary widely across the industry. Some renters put a check under the door of their landlord, others authorize a direct debit for their landlord to pull rent from their bank account every month. And, of course, there are dozens of other arrangements out there.

As we proceed, we’ll focus on the workflow of property and rental managers who manage many units and expect their tenants to transfer their rent to a central IBAN. We believe that the combination of rental management software and embedded finance can (it already has, in fact) revolutionize the way rental managers work under this arrangement. Let’s explore how!

The workflows underpinning rental management

What’s common today is that we see many tenants paying rent into a central bank account. This is great for them; it’s easy and they are simply required to ensure they have enough funds in their bank account and make the payment on the required date. Crucially for their transaction to be identified, they must also provide the correct reference data.

On the property management side, this arrangement can get messy. It is quite likely that for a given rental period, someone will forget to pay. How do you figure out who is missing? The manager must go through the list of all the payments and match the reference information with what lies in the internal system. But what happens if a tenant makes a mistake writing the reference? Or forgets entirely?

With embedded finance emerging as a new way to improve the collection of rent payments, a superior solution is easily in-reach. Utilizing the cleverness of dedicated IBANs, landlords can assign an IBAN per tenant which are all connected to one ‘master’ account. The renter user experience remains essentially unchanged. They still must make sure to have the funds to pay the rent and remember to make the payment. But now, since their transfer is being sent to an account assigned to them specifically, their payment is automatically identified. The rental manager can easily match the tenant with their dedicated IBAN.

With this considerable evolution in process, the rental manager can focus their attention entirely on tracking down late payments.

How embedded finance can help with tracking late payments

Let’s step into the shoes of a manager of rental properties. Imagine someone who’s responsible for 1000 properties. By the fifth business day of the month, the company bank account has received 850 rent payments. 150 tenants are late.

The manager can procure a .csv file from their bank that contains data on all incoming transfers from the past seven days. For every payment, they can see the IBAN of the sender, along with the reference information.

From this point, the manager likely has to use a combination of Excel magic and pure determination to figure out the identities of the 150 tenants who have not yet paid. This process can take days and invites many opportunities for human error. But there’s a simple way to eliminate this process: enter embedded finance.

When the manager uses a rental management tool with finance capabilities embedded, they can simply and cheaply create limitless IBANs. These are not bank accounts as such, but rather reference IDs that can be used to channel funds to a master account. A dedicated IBAN can then be created per tenant. With that, the rental manager has precise understanding of which IBAN received a payment, and thus knows which tenants are late with their rent and those that have paid on time.

Let’s not beat around the bush: this represents a significant innovation for carrying out this workflow. The time-consuming and inefficient process of identifying negligent tenants, which normally is the central responsibility of the rental manager, is almost completely solved by deploying embedded finance into the work stream. Time is saved that can then be put towards more customer-centric work like solving problems for tenants and increasing occupancy rates by attracting more residents. A true win-win.

How embedded finance can help with reconciliation and internal accounting

Embedding finance into your rental & property management offering brings data about money flows into the same place where mission critical business information is organized. Instead of toggling between a CRM tool and a banking interface to see cash balances, a user can see everything in one place, updated in real-time. The banking account and internal ledger are neighbors that talk with each other.

Under typical circumstances, finance officers often have little visibility into the overall cash situation of the business without time intensive manual reconciliation between accounts and ledgers. Using the rental management example, when a payment comes in from a tenant, the bank balance changes, but this event is not automatically recorded in the firm’s accounting operating system. Someone must reconcile between the account and the ledger.

This is where embedding finance can be so advantageous. Simply stated, data flows are united in one location. Software is tailored to carry out reconciliation and accounting work. You’re that much closer to an all-in-one too, so you can charge more for your product, while simultaneously improving traction in the market!

Oh, the places you’ll go!

Embedding accounts and payments into your rental management system is a slam dunk use case. Rent collection goes from a massive pain point to being hardly noticeable. Instead of having to manually match every tenant with their IBAN and reference information, assigning a dedicated IBAN per tenant takes all the work out of tracking down neglected rental payments.

Integrating payment collection with the rest of the suite of organizational software simplifies reconciliation and accounting. It is done efficiently within one comprehensive system.

Soon, we will even introduce the capability to initiate SEPA Direct Debits for rent collection. With the consent of the payee, managers will be able to pull funds directly from tenants’ bank accounts, meaningfully reducing risk of missed payment in the process.

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

Max Cutler
February 28, 2023
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