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Guest article by Brian Weide, Director of Treasury Management, DeNovo Treasury

Why Traditional Payments are Failing the CFO

To understand the opportunity, one must first understand the pain. According to research from Datos Insights, nearly 49% of corporate treasurers find that their financial institution’s lack of automated reporting forces them to use Excel sheets and other manual reconciliation methods, creating an operational bottleneck. In a traditional ACH or wire environment, the payment and the remittance advice (the why behind the payment) are often decoupled. The transaction is deposited in the financial institution’s account, but the information explaining which invoices are being paid arrives via a separate email, a PDF attachment or even a physical letter.

This decoupling creates a massive labor burden for the client’s accounts receivable (AR) team. They must manually match the incoming dollar amount to the outstanding invoices in their Enterprise Resource Planning (ERP) system. If the amounts don't match exactly, perhaps due to a short-pay or a discount, the process grinds to a halt.

As businesses move toward real-time operations, this information gap becomes even more acute. A payment that moves in seconds is of limited value if it takes three days of manual labor to figure out how to book it in the general ledger. This is where the data-driven relationship begins.

ISO 20022: The New Language of Business

At the heart of this transformation is ISO 20022. While often discussed as a technical back-office upgrade, ISO 20022 is actually a business revolution. Unlike legacy formats used for ACH or Fedwire^®, ISO 20022 is an XML-based standard that allows massive amounts of structured data to travel with the payment.

This rich data can include:

• Full invoice numbers and dates.
• A detailed breakdown of discounts or adjustments.
• Ultimate debtor and creditor information (essential for complex corporate structures).
• Tax identifiers and regulatory reporting codes.

When a community bank or credit union enables its clients to send and receive this data, they are doing more than processing a transaction; they are automating the client’s accounting workflow. They are speaking the language of liquidity.

The Community Bank and Credit Union Advantage: Closing the Consultative Gap

Large national financial institutions have the technical capability to handle ISO 20022 data, but they often fail at the last mile of service. They provide the data in a raw format and leave it to the client to figure out how to integrate it into their business processes.

Community banks and credit unions have the agility to close this consultative gap. They can sit down with a local manufacturer or a regional distributor and ask, "How much time does your team spend every Monday morning matching payments to invoices?" When the answer is "six hours," the institution has a wide-open door to provide a data-driven solution.

By helping clients understand how to format their payment files to include rich data, and by providing reporting tools that present that data in a user-friendly way, the financial institution becomes an extension of the client’s finance department. This is the essence of the data-driven relationship.

Consider a hypothetical regional medical supply company that delivers products to hundreds of clinics and pharmacies. Every day, they receive dozens of payments. Some clinics pay for five invoices at once; others take a 2% discount for early payment; others short-pay because a specific item was on backorder.

In a traditional banking relationship, the distributor’s AR clerk spends half their day logging into the financial institution’s portal, reviewing the credits and then cross-referencing them against a mountain of emails from the clinics. It is a slow, prone-to-error process that delays the company’s view of its actual cash position.

Now, imagine this distributor moves their relationship to a data-driven community bank or credit union. The institution’s treasury management officer helps the distributor set up a FedNow^® or RTP^® receiving protocol that requires rich remittance data. Now, when a clinic sends a payment, the payment message includes the specific invoice numbers and the reason for the 2% discount.

The financial institution provides a daily smart-reconciliation report that the distributor can upload directly into their accounting software. What used to take four hours now takes four minutes. The distributor’s CFO now has a real-time view of cash flow, allowing them to make better decisions about purchasing and investment.

The financial institution is no longer just a place where they keep their money; it is the engine that runs their back office.

Selling the “Why,” Not the “How”

To successfully execute this strategy, treasury management sales teams must change their pitch. Most financial institution sales calls focus on the "how": "We have a great mobile app," or "Our wire fees are competitive." A data-driven pitch focuses on the “why”: "We can help you reduce your Days Sales Outstanding (DSO) by automating your reconciliation."

The Discovery Questions for a Data-Driven Sale:

1. "What ERP or accounting software do you use (e.g., QuickBooks, NetSuite, Sage)?"
2. "How do you currently receive remittance advice from your customers?"
3. "When a payment arrives that doesn't match an invoice exactly, what is your process for resolving that discrepancy?"
4. "How much unapplied cash do you typically have sitting on your books at any given time?"

These questions shift the conversation from banking to business process. They position the Treasury Management officer as a consultant who is there to improve the client’s bottom line.

Operational Alignment: The Data-Ready Back Office

For the sales team to promise a data-driven experience, the operations team must be equipped to deliver it. This requires a shift in how community banks and credit unions think about payment processing.

1. Beyond the Balance and Transaction View: Traditionally, financial institution core systems and digital banking portals were designed to show a balance and a list of transactions. To support a data-driven strategy, the institution must ensure its digital platform can display and export the extended data fields provided by ISO 20022. If the data is stripped out by the core system before the client can see it, the value is lost.

2. The Integration Mindset: Operations teams should become familiar with common accounting software formats. Being able to provide a CSV or BAI2 file that is pre-mapped for a client’s specific ERP system is a high-value service that community banks and credit unions can offer.

3. Education and Advocacy: Operations and sales teams should work together to educate the client’s customers. A data-driven relationship is most effective when both the sender and the receiver are using the same standards. The institution can provide Vendor Onboarding Kits that the client can send to their customers, explaining how to send payments with rich data.

The Financial Impact: Stickiness and Fee Integrity

Data-driven relationships have a direct impact on the financial institution’s financial performance in three key areas:

1. Unrivaled Retention: Once a client has integrated their accounting workflow with the institution’s data feed, the cost of switching becomes incredibly high. Moving to another financial institution doesn't just mean changing account numbers; it means breaking a functional business process. This creates a moat around the relationship that protects it from price-based competition.

2. Fee Integrity: When you are solving a $50,000-a-year labor problem for a client, they are far less likely to haggle over a $0.50 transaction fee. Data-driven services allow community banks and credit unions to maintain fee integrity because the value provided is clearly tied to the client’s operational savings.

3. Deposit Stability: CFOs who have real-time visibility into their cash flow tend to keep more of their operating liquidity with the institution providing that visibility. They don't need to sweep funds to other institutions as aggressively because they have the data they need to manage their position effectively at the bank or credit union.

Conclusion: From Pipes to Insights

The future of community banking is not in the transaction; it is in the insight. As the world moves toward real-time everything, the institutions that thrive will be those that help their clients make sense of the speed.

By embracing ISO 20022 and data-driven relationships, community financial institutions can reclaim their role as the primary advisor to local businesses. They can prove that while large financial institutions may have more branches, the community bank or credit union has more intelligence.

The language of liquidity is being written today. The only question is whether your institution is ready to speak it.

Frequently Asked Questions

1. Our commercial clients are small; do they really care about ISO 20022? They may not care about the name of the standard, but they absolutely care about the result. Even a small business with one bookkeeper cares about not having to spend all Sunday afternoon matching payments to invoices. Don't sell the standard; sell the solution.

2. Is our core system ready for this? This is the most important question for your leadership and operations teams. Many legacy cores are data-limited. However, there are many middleware solutions and digital banking wrappers that can sit on top of a legacy core to extract and present ISO 20022 data. The first step is an audit of your current data capabilities.

3. How do we start the conversation with a client who is happy with ACH? Start with the pain of the unknown. Ask them, "When you see a credit hit your account, how long does it take you to know exactly what it's for?" Most will admit there is a delay. That delay is your opening to talk about the data-driven future.