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As companies in Germany expand both regionally and globally, the need for effective and efficient payment processing becomes increasingly critical. While many organizations may not initially seek a "payment hub," they soon recognize the benefits the tool can provide for centralizing and streamlining payment processes.
We spoke with Hubert Rappold, Senior Treasury Expert, and Daniel Neubauer, Senior Solution Manager at Nomentia. Both have extensive experience in treasury and cash management, working with various companies across different industries, sizes, and financial setups, particularly in Germany. In this article, Hubert and Daniel share their insights on how German companies view payment hubs, the challenges driving their adoption, the typical structure and integration of payment hubs, the key stakeholders involved, and the unique requirements and challenges specific to the German market.
How do companies in Germany perceive payment hubs?
In Germany, companies often view payment hubs through two primary lenses: efficiency and transparency/security.
From the efficiency perspective, a payment hub centralizes the entire payment process. Instead of dealing with multiple banking portals, companies can modify customized file formats in one place, simplifying the process and enhancing operational stability. This centralization means that changes only need to be implemented once, rather than across multiple systems. Additionally, payment hubs collect all invoices from different source systems into a single location, further streamlining operations and improving cost-effectiveness.
From a transparency and security perspective, a payment hub serves as a central repository for all payment-related activities, including creditor, manual, treasury, and salary payments. This centralized system helps companies get a precise overview of payments across multiple banks and systems, improving transparency. With one system, it is easier to standardize and enforce companies’ payment policies, making the process more consistent and less prone to errors. As a result, the company can be better at detecting suspicious or abnormal payments and preventing fraud. Furthermore, managing all payments in one place allows companies to control access of different users throughout the payment processes, enhancing overall security.
"Companies want operational efficiency: simplifying processes, saving time, and doing more with less. Transparency and security are also crucial. Having one place to check payments is more efficient and secure than managing ten different banking systems. The need for a payment hub can be that simply straightforward." explains Hubert Rappold, Senior Treasury Expert.
Factors driving payment hub adoption
Business growth and expansion
As a key business hub in Europe, companies in Germany usually expand globally, making their payment processes more complex. Even small and medium-sized enterprises (SMEs) often have banking relationships in multiple countries and continents, adding layers of complexity to their operations. Business growth alone can already challenge payment processes, such as increased transaction volumes on bank statements, leading to longer reconciliation and approval times. Additionally, expanding into new locations and adding customers, suppliers, and employees introduce new challenges, including additional bank connections, different ERP systems, new currencies, and diverse payment formats. For instance, a German company paying vendors domestically and internationally must adapt to different file formats in different countries. These variations make the payment process time-consuming, inefficient, and error- prone.
Security matters
Security concerns also increase with complexity. Managing multiple e-banking systems requires controlling user access and permissions for each. For example, when an employee leaves, access rights must be revoked in every system, a task prone to oversight. Many systems also require hardware tokens, which need to be stored and replaced if broken. This adds to the workload and increases the risk of fraud if access rights are not promptly and properly revoked.
Shifts in system infrastructure
In Germany, many companies currently rely on robust ERP systems, such as SAP. However, when there are upgrades in these ERP systems, for example migrating to SAP S/4HANA, it makes companies reconsider their entire technology infrastructure. In addition, the shift towards cloud-based solutions, accelerated by the speedy adoption of cloud productivity suites during the COVID-19 pandemic time, also encourages companies to move their finance processes, including payment, to the cloud. This shift is motivated by a desire for increased flexibility, user-friendliness, and autonomy in managing and enhancing financial operations—qualities that traditional ERP systems may not fully support.
“A recent example is SAP's shift to S/4 HANA. It presents an opportunity rather than a threat, as companies get a chance to explore more adaptable and efficient payment solutions beyond traditional ERP offerings” says Daniel Neubauer.
What do typical payment hubs look like in Germany?
According to Hubert, payment hubs in Germany are used to handle various payment processes, including creditor, manual, treasury, and salary payments – compared to traditional AP software. As a centralized platform for payments, a hub is usually connected with ERP systems, banks, and payment service providers.
ERP systems
ERP systems gather essential data on supplier payments that can be integrated with payment hubs, enabling automatic matching of payments with outstanding items. The commonly used ERP systems in Germany are SAP and Microsoft Dynamics, along with various smaller local systems.
Banks
Payment hubs connect with a range of banks, from local institutions to large international banks. Companies typically work with a mix of regional banks like Sparkasse and Volksbanken, and larger international banks such as Citibank, HSBC, JP Morgan, and Deutsche Bank. The choice of banks often depends on the company's size, international footprint and risk appetite.
Payment service providers
Third-party providers offer various payment-related services that help create a comprehensive hub. Depending on the specific needs of each company, these providers can deliver services, for example bank connectivity, payment reconciliation, cash visibility, fraud detection, etc.
Local influences on payment hub implementation
When it comes to payment hub implementation in Germany, there are multiple local factors that companies should keep in mind. These factors are important not only when companies are actually setting up the payment hub, but also before they start.
Dependency on ERP systems
German companies often face challenges when setting up payment hubs due to their reliance on complex ERP systems like SAP. Adjusting these existing systems to integrate with new independent payment hub solutions is seen as complex, time-consuming, and costly.
As Daniel has witnessed this issue in many cases working with clients, he suggests companies seek a payment hub that ensures seamless integration with their specific ERP systems, prioritizes compatibility, and has proven experience in integrations. They can assess payment hub providers' capability by reviewing their history with similar ERP system integrations.
Internal resistance
Departments used to their current systems often hesitate to switch to new solutions, even if payment hubs promise benefits. They worry about the effort and time needed to implement and adjust to changes. This resistance to change maintains the status quo, preventing improvements in operational efficiency.
To address this challenge, many of Nomentia's Germany-based customers prioritize starting internal communication and alignment right from the beginning. Initially, they ensure that relevant teams like Finance and Accounting understand the benefits of payment hubs to each team. Additionally, companies showcase efficiency enhancements across departments to gain broader support for the payment hub concept. Early engagement of key stakeholders in the decision-making process is also essential, as it helps to address their concerns and build commitment to adopting the new system.
"The finance team usually understands the benefits of payment hubs, but other teams may not see how it relates to their work. Early communication is key to getting everyone on board with new solutions like payment hubs!" says Daniel Neubauer.
Diverse banking landscape
The banking landscape in Germany includes a mix of local (such as Sparda-Bank, Volksbank) and international banks (for example HSBC, JP Morgan, and Deutsche Bank) with varying levels of technological capability. To handle this diversity, companies should consider payment hub vendors that have existing partnerships and connectivity with the banks they are working with. It is also crucial to assess vendors' experience and capabilities in connecting with new local and international banks to support future business growth.
Local payment file format
Despite the global trend towards standardized formats like ISO 20022, multiple legacy formats are still in use, such as DTAUS. Though Hubert believes that in the future all the banks will eventually adopt the standardized formats, it is still important now to consider all these local formats and ensure that the payment hub providers can support them. At the start of the payment hub implementation plan, the data formats of the invoices should be reviewed again to make sure they are all properly mapped later.
Payment communication channel
EBICS (Electronic Banking Internet Communication Standard) is widely used by companies in the region to exchange data with banks. EBICS helps companies connect with all these banks in a similar way.
Key stakeholders in payment hub implementation
Implementing a payment hub involves various key stakeholders:
- IT: In larger companies, the IT department handles the technical aspects of the implementation. Their involvement can vary, and sometimes having a single competent individual can simplify the process, regardless of the company's size.
- Finance: Generally, the finance department, including accounting, treasury, and related functions, is heavily involved in the project. They ensure the payment hub integrates well with the existing financial processes and systems. In smaller companies, treasurers may have to assist with setting up new systems due to limited IT resources.
- Bank counterparts: Multiple counterparts within banking groups can complicate the process. The effectiveness of the implementation can depend on the client’s relationship with the bank. Larger companies or significant clients of a bank might experience faster progress.
- Consultants: Work with the client’s finance and IT departments to guide the setup and integration of the payment hub. They ensure that all parties are aligned and the system meets the company’s requirements.
Payment hub implementation process
Implementing payment hubs in Germany follows similar steps to other countries. The differences for this region only appear in the details, such as payment file formats, electronic bank statement formats, and communication channels. Here’s the typical implementation process for companies:
1. Scoping
The process starts with a scoping phase where consultants from the payment hub solution provider and the company collaborate to document implementation details based on prior discussions and requirements. This scoping document outlines the customized setup needed for the payment hub.
2. Agreement and setup
Once the scoping document is finished and the company agrees to it, the implementation team starts to set up the basics. They create the system, set up key user accounts, put in company and account details, and give users the right permissions to use it.
3. Training and joint setup
Consultants guide the customer team through the setup process, demonstrating how to configure and customize the system. The members of the company join in setting up the payment hub with the support of consultants, ensuring they understand and can manage the system independently.
4. Testing
This is a big step where the customer team makes tests based on how they do business. They do these tests to see if the payment hub works right and is fast enough. Consultants help with any problems that come up.
5. Training
Training sessions are conducted in parallel with testing to familiarize users with the new system. Key users, typically a smaller team within the company organization, undergo intensive training to become proficient with the payment hub. After tests show it works well, more employees learn how to use it too.
6. Finalization
Once testing is complete and all issues are addressed satisfactorily, the customer team signs off on the implementation. This confirms that the payment hub functions as intended and meets all specified requirements.
7. Go-live
The last step is to go from a test environment to actual production. Consultants finalize the bank connections and begin importing bank statements and sending payments for the first time from the live system. Then, the payment hub is fully in use.
Benefits of payment hubs
Companies in Germany, like those in other markets, see many advantages in setting up a payment hub. Some benefits might be more significant for certain companies, but generally, there are common benefits that all companies can enjoy:
- Efficiency: Companies are set free from logging in to multiple online banking portals, either local in Germany or international ones, and managing manual processes like collecting bank statements from different sources every morning.
- Automation: Payment hubs automate the import of bank statements and payments between banks and ERP systems, regardless of the required file formats. This streamlines operations and minimizes manual data entry and human errors.
- Centralization and standardization: Companies just need to go to a single platform to manage all bank connections and payment processes, ensuring consistent approval processes across all entities and banks.
- Security: By centralizing information from various sources into a single system, payment hubs enhance the accuracy and reliability of financial data. This consolidation improves transparency and control, ensuring that companies can monitor and secure their financial transactions more effectively.
Payment hubs - Key to efficient and secure financial operations
Payment hubs in Germany play an essential role in businesses, streamlining financial operations, enhancing security, and seamlessly integrating diverse systems. Although there are initial challenges such as fitting into existing ERP infrastructure and overcoming resistance to change, the benefits of efficiency, automation, and improved security would outweigh the challenges in the long term. Ultimately, payment hubs enable companies to manage modern finance complexities effectively, ensuring smoother operations and greater control over financial processes.
However, since each company has its unique setup, specific cases might require custom solutions. If you're interested in learning more about the payment hub implementations we've done in Germany and the best way to set up a payment hub for your specific case, please contact us by filling out the form on our 'Contact Us' page.
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