Workflow series #6 - Modern payouts

In this article, we explore how Numeral reinvents the payout process to make it failure-proof, scalable and value-added for customers.

Payouts at a turning point

For decades, the way businesses have been doing payouts hasn’t changed. Traditionally, organisations have relied on Enterprise Resource Planning (ERP) systems or legacy bank connectivity software to manage their payments, which typically process transactions by sending XML files to banks, which are then processed in batches at the end of the day. 

A critical drawback of traditional payout systems is the lack of real-time visibility into payment statuses. Businesses today require immediate insights into their financial transactions to make informed decisions and manage cash flow effectively. Additionally, these older systems often suffer from rigidity in payment instruction formats, primarily relying on file-based inputs with limited support for API connectivity. This inflexibility hampers integration with more modern systems that leverage real-time data exchanges and can adapt more dynamically to changing business needs.

Furthermore, traditional payment solutions typically do not provide a comprehensive audit trail from initiating a payment to its final settlement in the account. This lack of end-to-end tracking makes it challenging to verify transactions and ensure compliance with regulatory requirements. The absence of detailed audit capabilities exposes businesses to potential risks of errors and fraud, making it imperative for organisations to adopt more advanced and secure payment technologies that offer complete transparency and traceability.

The changing paradigm of faster payments

With the development of instant schemes worldwide (FPS in the UK, SEPA Instant Credit Transfer in Europe, RIX-Instant in Sweden), the historical approach to managing payout operations has become increasingly inadequate for modern business needs. Both payments and the associated liquidity requirements must now be managed intra-day instead of D for D+1 in the traditional batch system.

Instant payments are also emerging for BtoB payouts to create value and become a competitive argument in commercial discussions with clients. From insurance companies offering instant disbursement to factoring companies offering real-time invoice liquidity to the treasury, the possibilities are endless to provide additional liquidity to finance teams.

Lastly, instant can also support a broader way of managing cash. Increasing opportunities in treasury yields and scrutiny of safeguarding institutions (for regulated companies) translate into higher expectations in the speed of liquidity management.

Instant payments - at the exact cost as traditional payments in the EU end of 2024 - will be the trigger for a new way of doing payouts

Building modern payout operations with Numeral

At Numeral, we reinvent the payment infrastructure for payouts to ensure finance, operations, and product teams can accelerate payouts across their banking partners through a single platform.

A modern payout infrastructure, to be 100% error and fraud-free, needs to include the following components 

• Validating beneficiary accounts

• Initiating payouts from any systems 

• Screening transactions for fraud 

• Setting up 4-eye validation when relevant

• Tracking a payment’s execution and settlement status

• Setting up custom retries and fallbacks 

• Automating cash sweeps to support payouts

Let’s run through how all these steps can be implemented with Numeral (API documentation here).

Validating beneficiary accounts

Most payout errors lie in account issues, namely accounts closed, migrated or wrong account numbers. Numeral allows to conduct a thorough verification of those accounts, checking on:

• Account information technical correctness

• Account existence 

• Account holder name-check 

• Account reachability with instant payment schemes

All those checks can be done through a single endpoint, which returns whether the beneficiary account has passed all those checks.

POST https://docs.numeral.io/reference/verify-counterparty-account

Initiating the payout

Once the beneficiary has been verified, payouts can be initiated across schemes and banks connected through a single end-point by creating a “payment order”.

POST https://docs.numeral.io/reference/create-payment-order

In the structured JSON, payment routing information can be easily adjusted through a single line of code

• “Scheme and direction” specify which scheme to use 

• “Connected account id” specifies which account to send the payment from

Depending on the architecture set up with our customers, payment orders can also be created by uploading files generated by ERPs or TMS.

Screening fraud

Numeral customers can bring the real-time fraud provider they integrate into the payment lifecycle. After each payment initiation, Numeral will call the third-party fraud provider and, based on the fraud monitoring response, either validate, reject or put on hold the payment for manual validation.

Setting-up 4-eye validation

Depending on rules set by the finance or compliance teams, payments with a certain threshold or risk profile can require four-eye approval from other members. Payments in Numeral can be created with “auto_approval = false” to add a step of four-eye validation. Additional validation can be done either in the Numeral dashboard or through the API and the endpoint below.

POST https://docs.numeral.io/reference/approve-payment-order

Tracking a payment execution and settlement status

Payments in Numeral are tracked end-to-end, in real-time and at the unit payment level. In a single payment order, payment operations teams can track

• Payment execution

• whether the payment has been confirmed and executed by the bank

• Payment settlement

• whether the payment has been settled as a transaction on the company’s account 

• Payment R-transactions

• whether the payment has been returned or recalled 

Numeral’s universal payment lifecycle and reconciliation engine allows users to track status changes and notify internal systems through webhooks about individual payment changes across all banks and schemes.

Setting up custom retries and fallbacks

Payments can fail. When payment execution is business critical, being able to instantly retry or fallback to another scheme is key to successfully delivering the payment. Custom rules for retries and fallbacks can be set based on failure reason codes in the Numeral dashboard.

Starting your payment modernisation

With Numeral’s end-to-end payout platform, companies moving money can ensure 100% payment success and compliance at scale and with real-time data. Numeral can integrate into any system through our API/webhooks, native core banking/TMS connectors or our universal file ingestion engine, making payment transformation projects fast and efficient.

If you are looking to start your payment modernisation journey today, do not hesitate to get in touch.