This document discusses payment factories, which refer to centralized hubs established by companies to gain greater control and efficiency over processing payments. Payment factories can take various forms depending on factors like a company's processes, technology, bank relationships, and location. The document examines the benefits payment factories can provide, such as increased standardization, visibility, control and lower costs. It also provides examples of different payment factory models and considerations for establishing one.

1. Payment Factories: different ways of achieving
payment efficiency
Jonathan Jordan
EMEA Payments Market Manager, Citi Transaction Services

2. The term Payment Factory is becoming increasingly talked about in the drive to achieve
payment processing efficiency. This article examines the route to setting up a Payments
Factory and highlights how – despite having one goal - Payment Factories take on many
forms.
Payment Factories
The term Payment Factory is used widely and is often interpreted in different ways.
Broadly speaking, a Payments Factory refers to an organisation establishing a central hub
to gain a degree of central control and management over the processing of previously
decentralised payment flows. The actual structure of a Payment Factory can manifest in
a number of ways with internal factors, such as configuration of processes, technology
and staff, and external factors, such as bank counterparties, connectivity and account
structures, leading to varying models.
One interpretation describes a Payment Factory as the construct resulting from a full
centralisation of both account payables processes and staff into a single location –as
within a Shared Services Centre (SSC) - while other organisations would consider a
Payments Factory to be a centralised hub, solely responsible for execution of payments to
banking partners and facilitated by decentralised accounts payable processes. Neither
interpretation is wrong therefore we need to understand the factors that influence a
Payments Factory set-up and what benefits can be realised.
Corporate Landscape
Today many corporates continue to manage their payments processing and bank accounts
at the business unit level or at the subsidiary level. While these methods may offer a
degree of flexibility, at the same time they can often result in poor visibility and high
maintenance costs. Multiple systems, banking relationships and processes tend to
introduce higher costs, lack of visibility into cash flows, complex approval processes,
operational risks, reporting challenges and a general lack of standardisation.
Cash management and payments processing structures will be influenced by various
factors including nature of business, trading model, location of buyers and suppliers, bank
relationships and degree of centralisation of processes. Payments setup will be influenced
by relationships with suppliers, operating currencies, bank connectivity and services,
technology/ERP status. Thus the starting point when evaluating payments structures will
likely be different for most corporates and also the benefits of centralisation.
While pressure to reduce costs has typically lead corporates to assess their processes,
SEPA developments are also leading organisations to focus on Payment Factories. The

3. European Parliament recently enacted a law which set 1st February 2014 as the end date,
within the Euro Member States, for the migration of Euro credit transfers and direct
debits to SEPA standards. This has focused many corporates to assess their existing Euro
payment flows in order to understand the impact of SEPA to their organisation and the
necessary preparation activities. As part of this SEPA effort, which promises
standardisation, efficiency and a reduction in Euro accounts, many are taking the
opportunity to evaluate their wider payments infrastructure.
What value can payments factories deliver?
A centralised approach to payment activities can help a corporate achieve benefits in a
number of areas dependent on their current activities and cash management strategy.
These include:
Increased Standardisation & Efficiency
 Gain consistency in payment process enabling automation, higher STP rates, less
manual activity and resultant cost reduction
 Ability to reduce number of banking relationships and rationalise account structures
 Standardisation of Euro payments processing through the utilisation of SEPA Credit
Transfers
 Harmonisation of bank connectivity and file formats utilising SWIFT and ISO
20022 XML
Increased Visibility & Control
 Visibility over internal payment and control over funding arrangement leading to
optimisation of liquidity
 Easier reporting for internal and regulatory purposes as payment information
becomes available centrally
 Fraud reduction through process management, visibility and implementation of
control policies
 Consolidated supplier visibility enabling better supply chain management and cost
negotiation

4. Lower Costs
 Lower transaction costs with better management of banking
 Improved Foreign Exchange spreads with consolidation of payment flows
 Better utilisation of available funds as funding processes and interest conditions are
optimized
Different starting points towards a Payments Factory
The structure of a corporate’s payments factory will vary depending on their existing
payment setup and the future cash management strategy of that organisation.
Organisations that are starting from a decentralised, multi-banked basis, will likely be
seeking, as their priority, control, visibility and standardisation over their payment flows.
This is typically achieved by either using a shared banking application or by adopting a
system that facilitates the receipt of instructions from business units and creates payment
files for onward delivery to banking partners. Essentially all external payments are sent
and all bank statements are received through a single delivery channel.
Those organisations that have already achieved a degree of payments centralisation will
be more focused on achieving further process efficiencies through improving straight-
through-processing (STP) rates, improving funding efficiency and automating processes.
In-House Banks, Netting and Payment-On-Behalf-Of (POBO) structures are also often
employed to facilitate intercompany activities, manage cash positions and aggregate
payment obligations.
Some important questions that need to be addressed at this stage include:
 How are payments processed today?
 How many banks are providing payment services?
 How does the communication take place with these providers?
 What are the core currencies for the organisation?
 Are incoming collections funding payments activities?
 Is there visibility and control across payment activities?
 How efficient is the funding process?
 Where is working capital trapped?

5. Varying corporate priorities
Having first understood the current structure, the next step is to define a future vision for
cash management and payment activities. This will inform the Payment Factory
priorities, help drive internal and external discussions and assist the process of
determining the payment factory solution. For some organisations the main focus and
priority will be increasing cash utilisation, for others it will be headcount reduction or
having a bank agnostic infrastructure. This vision is often driven by identifying the
immediate key challenges and cost areas in the corporates payments process. Discussions
with banking and technology partners can also help guide the decision making process
and help inform corporates of solutions that can support their Payment Factory model.
Corporates should consider the following:
 Scope (e.g. geographies and business units in scope, scope of change –processes,
staff numbers/location, intercompany activity)
 Banking Strategy (e.g. preferred number of payments processing partners, bank
capabilities, requirements for local account services)
 Liquidity Management (e.g. currencies, preferred account structures and locations,
funding arrangements, aggregation of liabilities, business unit control)
 Connectivity and File Formats (e.g. preferred method of bank communication,
relative importance of bank agnostic channels and formats SWIFT/ISO 20022
XML)
 Internal readiness to support changes in processes (e. g. changes in technology
required, ability to support changes in desired timelines, conflicting projects,
cultural hurdles such as local business unit autonomy)
 Legal and Tax (e.g. changes to account structures, tax implications, reporting
requirements
Desired Payment Factory models can vary based on multiple factors. While the drive
towards efficiency is common, so too is the use of technology as an enabler of payments
factories – today corporates are using, in varying ways, ERPs, TMS, online banking
applications, host to host connections and additional middleware to achieve their
payments objectives. Below are some examples of how organisations can evolve their
Payments Factory set-up.

6. Diagram 1: Example of Payment Factory that facilitates the receipt and of instructions from business units
and creates payment files for onward delivery to banking partners
Business Unit
Accounts Payable
Business Unit
Accounts Payable
Business Unit
Accounts Payable
Business Unit
Accounts Payable
Payment Instruction
Payment Instruction
Payment Instruction
Payment Instruction
Debit
Business unit a/c
BankingPartner
Payment
Instructions
Reconciliation
& Reporting
Payments to
beneficiaries
Payments Factory
ERP /
TMS /
Middleware
Payments Factory
ERP /
TMS /
Middleware
Source: Citi.
Diagram 2: Example of Payment Factory within a Shared Service Centre
Debit
Business unit a/c
ERP / TMS
Centralised
Accounts Payable
Sub Ledgers
ERP / TMS
Centralised
Accounts Payable
Sub Ledgers
BankingPartner
Payment
Instructions
Reconciliation
& Reporting
Payments to
beneficiaries
Source: Citi.
Establishing a Payments Factory
As with any change project, establishing a Payment Factory requires internal scoping,
planning and preparation. The participation of treasury, accounts payable, legal/tax,
technology, and project management teams will likely be required.

7. Diagram 3: Factors to consider when establishing a Payment Factory
 Foreign Exchange
 Credit Management
 Counterparty Risk
 Project management
 ERP / TMS setup
 In House Bank / Netting /
POBO
 Connectivity
 STP
 Process change
 Bank Relationships
 Account structure
 Forecasting
 Approval processes
 Bank Account Management
 SLAs/ Intercompany agreements
 Legal and Tax Security and
Compliance
Risk
Management
Efficiency &
Process
Optimisation
Technical
infrastructure
Source: Citi.
The continued trend towards bank rationalisation
Despite the economic uncertainty and increased corporate focus on bank counterparty
risk, the trend of centralisation of payments activities to core processing banks continues
as corporates continue to see the value in working with fewer banks for their payments
needs. Multiple banks relationships introduce inefficiency into the payments process as
duplications of processes and connectivity, varying bank requirements, processing cut-off
times, etc. all lead to higher costs, lack of visibility, control and general inefficiency.
Multinational organisations require global banking partners who can support their multi
country banking requirements, advise on payments structures, identify opportunities for
efficiency and deliver payments solutions that enable corporates to achieve their cash
management goals.
In summary, a Payments Factory can materialise in several forms but the underlying
focus is universal – a drive towards greater visibility, control and efficiency. Having a
clear understanding of your set-up and your vision while working with the right partners
can help unlock these benefits.

8. This article first appeared on gtnews.com in May 2012
About the Authors
Jonathan Jordan is currently the EMEA Payments Market Manager for Citi Transaction Services.
In this role Jonathan is responsible for positioning and packaging payments solutions for Citi
Transaction Services. He is based in London. Prior to this, Jonathan was a Business Development
Manager, responsible for executing partnerships and non-organic opportunities for Citi. He has as
also worked in cash management and trade services roles for Citi in other Western European and
Middle Eastern countries. Jonathan has been in the banking industry for nine years. He started his
career with Citi in New York after completing his degree in Business Information Systems from the
Dublin Institute of Technology, Ireland.

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