Financial technology is estimated to grow over 7 trillion dollars by 2026, according to Bain. That’s a lot of money when looking at how the concept of financial tech wasn’t as popular before the digital transformation boom. Fintech will only continue to grow as an industry due to customer-driven demand for financial products that improve customer experience and increase financial inclusion.  

The pop up of easy-to-use digital financial products hasn’t been an overnight transition but has been a strategic move of tech and financial leaders looking to create a more open, modular financial ecosystem. An integral part of this fintech boom lies in the offering of financial products and services that are accessible, customizable, and cost saving. Many fintech startups began by providing digital banking services and payment facilitation. However, now, some fintech leaders who initiated the boom are looking for ways to achieve the ideal: embedded finance.  

Embedded finance cannot be achieved overnight but there have been conscientious moves towards this idea through automation. Automation of financial processes typically involves the combined use of rules-based robotic process automation (RPA), machine learning (ML), and artificial intelligence (AI) to automate manual financial tasks that are built within a cloud-based infrastructure. Instead, being an on-premises software, financial automation can be accessed and operated from anywhere, allowing businesses the flexibility to work remotely or have hybrid workplaces.  

Many companies already offer financial automation solutions but do not necessarily incorporate embeddedness into their solutions. As a result, companies using these technologies may have to buy multiple types of software and make the effort to synthesize the information from these systems together. As you may think, this task can be quite daunting for a company who may not have the manpower to do this, which is why more and more companies are searching for embedded financial automation solution providers. 

The Business Case for Making Financial Automation Embedded 

Embedded financial automation (EFA) means that the entire user experience happens within one centralized platform where a user can complete multiple automated financial processes. This allows for teams to use different financial products within one application without having to log out and use another application. Working within an EFA solution is a truly personalized experience where the solution is completely branded to the main interface. This experience grabs data from multiple sources, which creates seamless application flow and a friction-less user journey. For centralized access to multiple processes, an EFA solution may employ deep integrations with multiple partners or rely on internal development of financial process automation. As a result, EFA creates a multi-product financial ecosystem 

Features and Benefits of Embedded Financial Automation

EFA is an investment and can offer companies who effectively deploy it a competitive edge. What makes EFA particularly shine is its robust features: data-driven decision-making capabilities, collaborative cloud-based environments, multi-currency and multi-company flows, embedded risk management, and automation of financial processes. These features provide an array of benefits that drive ROI and increase productivity in the long-term. 

Financial Analytics

Financial automation integrates accounting and treasury data into one centralized location which either could be in an ERP system or a standalone financial automation solution. All accounting and financial data is synthesized into real-time reporting and analytics so your team can understand the health of your cash flow and liquidity rates. Integration of data visualization applications, such as Power BI, have also become common, which has made it even easier for teams to create dashboards and report tracking progress on KPIs and working capital optimization.  

Liquidity Management

Treasurers often struggle with cash flow optimization and effective management of working capital. These problems are solved with a treasury automation solution that is equipped with cash flow forecasting and positioning. With these capabilities treasury teams can optimize their business’ cash resources, predict future fluctuations in asset usage, and engage in scenario-based cash planning. 

Embedded financial automation also makes it easier to access liquidity itself because of the coordinated use of multiple financial processes, which in turn optimizes working capital. For example, when a company uses AR automation and collections management together, they can convert receivables and tied-up debts into cash which increases a company’s cash availability. As a result, companies who effectively use liquidity management to their advantage can cut down debts and fund short-term investments.  

Automation of financial processes

To manage liquidity and optimize working capital, automation of vital financial processes is embedded within EFA solutions such as bank reconciliation, cash application, settlement automation, and vendor payment automation. Particularly, the automation of bank reconciliation and AR cash application have been the steppingstone for treasury teams to first get a taste of what a digital transformation initiative looks like. 

Once acclimated to automation, treasury teams can look further into using automation to its full potential. This expansion has led to a surge in payments automation. According to Bain, payments and lending management will continue to be the most popular embedded financial products. With the rise of payment facilitators such as Square and Plaid , their capacity to underwrite merchants for banks has allowed business-to-consumer (B2C) to become more widespread where merchants have the flexibility to accept payments across a variety of channels. API-based solutions like SK Global Software’s BankFabric solution can send bank data to and from the bank directly into the ERP, allowing for real-time updating of transaction and balance information within the ERP.  

Business-to-business transactions, such as accounts payable and accounts receivable, have been a long-standing integral part of financial automation but have not had the same level of traction as B2C payments. This is mostly due to continued reliance on ACH and checks by many mid-market to large companies in the U.S. However, these same companies have been increasingly rolling out digital transformation initiatives focused on B2B transactions because of the COVID-19 pandemic and the shift to remote and hybrid work. These companies have found that having one centralized solution where a treasury team can manage Accounts Receivables (AR) and Accounts Payable (AP) in one place will save time and costs in the long term.  

Accounts Payable and Accounts Receivables

With AP and AR, treasury teams can become completely paperless since automated solutions require no paper invoicing and billing. The treasury process most affected by automation is AP processing, which is considered one of the most costly and inefficient treasury processes when done manually. Teams that still use a manual AP process will continually have problems paying vendors and lowering their company’s debts. By using an automated treasury management solution that includes AP processing, businesses can decrease DSO and DPO along with minimizing late payments through the automatic uploading and matching of vendor invoices to existing accounts. When AP automation is coupled with AR automation, businesses can optimize their cash conversion cycle and minimize their liquidity risks long term.  

Digital Banking and Virtual Cards

Other facets of finance are also being affected by embedded financial automation solutions. Since fintech startups envision a future where all financial needs are met in one system, fintech leaders have been looking for ways to integrate banking and virtual card solutions within their product roadmaps. Banking products and digital card issuing services will continue to rise as more financial institutions and SaaS companies build APIs. Startups like Marqeta are releasing products that offer businesses the capacity to create their own financial products where businesses can create their own credit cards without having to go through the hurdles of getting bank approval. Growth in this industry will come from continued integration with larger financial institutions and the extension of the connectivity of these products. To achieve this, data fabric technology will assist SaaS and BaaS companies alike to extend their products’ integration with banks across the world. 

Collaborative work environment – remote friendly workspace

In an automated system, users can enjoy seamless coordination with team members where they can work simultaneously within one centralized system that tracks changes and speeds up the approval process through automated email notifications. The integration of approval workflows notifies team members of pressing tasks through email, chat, or text notification. EFA can not only achieve integration internally but externally through connecting to a countless number of banks. These solution providers create robust relationships with banks so that information going to and from the bank is seamlessly exchanged, which can either be done via file transfers or utilizing a bank’s API.  

Multi-currency flows and multi-company capacity

In manual treasury processes, having multiple currencies and subsidiaries causes some significant pain for treasury teams because this means manually converting foreign currencies to domestic currency while simultaneously managing multiple payment journals. On top of this, treasury teams must manage all these processes in an error-free manner, which is extremely difficult to do. These problems are eliminated when using an automated treasury management solution. Instead of manual FX conversions, this type of solution automatically converts foreign currencies and enables trading in multiple currencies so that businesses can work with global suppliers and sell internationally. The payment journal process is also significantly streamlined since payments in foreign currencies are automatically converted to the domestic currency and recorded. This automatic conversion is typically done through an FX settlement module, which analyzes real-time exchange rates and processes payments with the best rate.  

For enterprise businesses that have more complex needs, there are a range of solutions that can offload pressures on their treasury teams. Many teams have chosen in-house banking to manage the complex external banking structures that enterprise businesses typically have. With automated in-house banking, like SK Global’s In-House Banking module, intercompany invoices and vendor payments can be completed within a single ERP system and bank account management for each subsidiary can all happen in one system. For treasurers, an in-house banking powered by automation has meant centralized control over all subsidiaries’ accounts, transparency over the entire banking sub-ledger, and better management of cash and balances.  

Risk mitigation

Competitors in EFA will also continue to branch out and continue to automate the financial processes that their solution is currently missing. One key area that EFA solution providers will continue to prioritize is risk management, which is of upmost importance to companies who regularly handle customer data. Risk management is an integral part of these systems where high-quality solutions incorporate tokenization, encryption, and compliance to global security standards. Tokenization ensures secure end to end payments through substituting sensitive data with non-sensitive data. When built into an ERP solution, many solutions leverage the built-in security roles and security levels of this software, which significantly insulates companies from potential fraud and risk. Security regarding EFA will continue to be a key issue particularly for lawmakers who are looking to minimize fraud and data leaks through the implementation of Know-Your-Customer laws.  

How to transition to EFA

Transitioning from manual processes to EFA can be a daunting task for many mid-market and enterprise companies. However, treasury teams are not alone. Consulting firms and fintech providers are readily available to help companies transition from manual to cloud-based processes.  

Before reaching out to an external organization, it’s generally recommended to look internally to assess whether the transition to EFA is needed. As a first step, treasury and accounting teams should consider current work processes, particularly which processes can be automated first, and which processes should be automated later in the digital transformation initiative. Slower adoption of more complex automated solutions may be required, especially when your team is considering automating a sizable number of processes. It’s completely normal for these transitions to take years so treasury teams should not be rushed to immediately implement automation.  

Treasury teams should also thoroughly evaluate their current treasury management software before automation. This exercise will help your team identify which financial automation solutions work for your company and will pinpoint which weaknesses in your current treasury management need to be addressed.  

Here are some additional questions your team should consider: 

  • What is the strength of your data collection – how could it be improved with EFA? 
  • How effective are your current risk management processes?
  • Does your team have access to forecasting?  

After considering these questions yourself, discuss with your treasury team the merits of automation and where they see it being optimized. It’s vital to use your team’s expertise especially when considering a significant digital transformation initiative. After considering the pros and cons of expanding your financial automation capabilities, it is important to identify the internal stakeholders that will drive this initiative and from there, form an ad-hoc team. These stakeholders can come from a wide range of departments such as from your C-Suite to middle managers.  

After forming a team, find a reliable partner or solution provider that can customize financial automation to your needs. You need to work with a team that can be flexible and has the time to educate your team on the software. After putting money into automation, you need to ensure that you are working with a solution provider that has a comprehensive onboarding process so your team can hit the ground running after the software goes live. These steps will help drive ROI once your EFA solution is in operation.  

If your team is currently looking for such a partner, it may be worth it to reach out to your ERP system if your company already uses one. All prominent ERP systems, such as Microsoft Dynamics 365 and SAP, have built formidable networks with consultants who can help your team achieve greater automation. If your team currently employs Microsoft Dynamics 365 Finance & Supply Chain, SK Global Software can be a great resource for expanding your financial automation capabilities. Our consultants with over 20 years of treasury automation experience can analyze your current financial processes and can configure an embedded solution based on your team’s pressing needs.  

If your team is interested in enhancing your current automation within your D365 Finance ERP system email to learn more about our current product offerings.