Payment analytics and reconciliation tools, build or buy?

By Marco Conte

Let’s try to picture a scenario where you are running a large e-commerce business or you offer services to accept digital payments, handling thousands to millions of transactions daily. The constant pressure is to ensure that every financial transaction is processed quickly, securely, and without creating issues that might affect the end-user customer experience. 

On top, you need to make sure all the payment methods or integrations with tools related to payments are operating fine, making your checkout experience seamless.  

But what happens if the payment infrastructure you rely on is holding you back? How can you keep control of it and make sure that you recognize issues when you are still in time to mitigate the financial impact on your business operations? 

Why should a modern business leverage data analytics for payments? 

There are several reasons why a business should consider building or using data analytics solutions for payments. Below are just a few: 

• Decision Making and Business Strategy: businesses need actionable intelligence to make informed decisions and develop effective business strategies. By analyzing payment data, businesses can identify trends, forecast future market demands, and optimize pricing. This can help businesses stay competitive, identify growth opportunities, and make data-driven decisions. 

• Reconciliation and Operational Efficiency: with the right tools in place businesses can uncover inefficiencies in payment processes and identify areas for improvement. By analyzing transaction data, businesses can optimize payment processing, streamline operations, and reduce costs. Fully automated and advanced reconciliation can help in identifying bottlenecks, reducing manual processes to the minimum, and improving overall operational efficiency. 

• Revenue Optimization: businesses can optimize revenue generation with access to deep data insights. By analyzing customer purchasing patterns and identifying cross-selling or upselling opportunities, businesses can increase average transaction value and maximize their revenue. Additionally, data analysis can identify areas of revenue leakage, such as failed transactions or missed opportunities, helping businesses capture and recover those potential revenues. 

• Risk Management and Compliance: full access to data supports businesses in managing risks and ensuring compliance with regulatory requirements. By monitoring and analyzing transaction data, businesses can identify potential risks, such as non-compliant transactions, processes or suspicious activities, and take appropriate measures to mitigate the connected risks. This can be a key business aspect specifically for marketplaces and payment facilitators, helping to maintain regulatory compliance, protect their reputation, and avoid legal and financial penalties. 

• Fraud Detection and Prevention: data insights can help identify patterns and anomalies in payment transactions and reported chargebacks, enabling businesses to detect and prevent fraudulent or abusive activities. By accessing the available datasets, analyzing historical transaction data and applying machine learning models, businesses can develop strategies that can accurately flag suspicious transactions in real time, minimizing financial losses and protecting their customers. 

• Customer Behaviour Analysis: businesses can get access to valuable insights into customer behaviour, preferences, and purchasing patterns. By understanding customer preferences, businesses can tailor their products, marketing strategies, and pricing to better meet customer needs, leading to improved customer satisfaction and loyalty. 

Financial reconciliation is a key component of payment acceptance.  

Advanced reconciliation processes are a must-have in an ever-evolving complex payments industry. Recently we have seen how companies such as Revolut have been suffering major losses from incomplete reconciliation processes. Some of the reasons why payment reconciliation is a crucial process for businesses that accept payments:  

• Vendor and Supplier Management: Especially for companies that both manage pay-ins and payouts, extended financial reconciliation can enable effective vendor and supplier management. By reconciling payments with vendor invoices or purchase orders, businesses can ensure that they are accurately paying their suppliers and detecting any discrepancies. This helps maintain healthy relationships with vendors and minimizes payment disputes or errors that could negatively impact the supply chain.

• Accuracy and Error Detection: Payments reconciliation ensures the accuracy of financial records by comparing and matching payment transactions from various sources, such as bank statements, payment service providers’ reports, ERP (Enterprise resource planning) software and internal booking engines. It helps identify any discrepancies or errors in payment data and settlement of funds, such as missing or duplicate transactions, incorrect amounts, or failed payments. By detecting and resolving these discrepancies promptly, businesses can maintain accurate financial records, prevent potential financial losses and avoid issues for their end consumers.  

• Financial Control and Accountability: By regularly reconciling payments, businesses can ensure that all transactions are properly recorded, accounted for, and aligned with their financial records. This helps in the identification of any discrepancies, tracking payment inconsistencies or errors, and maintaining transparency and accountability in financial operations.

• Cash Flow Management: By reconciling incoming and outgoing payments, businesses can have a clear understanding of their current cash position, projected cash flow and next expected payouts or fund settlements. Businesses can then make informed decisions regarding investments, budgeting, and financial planning.  

Buy or build a payment data analytics or reconciliation tool?  

Like everything in life and in business, every decision has its pros and cons.  

Building Advantages: 

• Customization: Building a payment data analytics or reconciliation tool allows businesses to tailor the solution to their specific needs. Internal teams can design and develop features and functionalities that align with their specific data needs, requirements, company goals, and operational objectives. This customization enables businesses to extract maximum value from their data and gain insights that are directly relevant to their business. 

• Data Control: Developing an in-house tool gives businesses complete ownership and control over their data. They can define data collection methodologies, how and where to store the data, data processing policies, and data security measures according to their own standards and policies.  

• Competitive Advantage: Building their own payment data analytics or reconciliation tool can provide a competitive edge to businesses. It allows them to unlock valuable insights from their overall data, which can be leveraged to make data-driven decisions, improve operational efficiency, enhance customer experiences, and identify new business opportunities. Such products in some cases can be offered as well to other internal or external customers according to their specific needs. Some people may argue that competitive advantage can be achieved as well with the usage of the right external tools.  

• Scalability and Flexibility: An internally developed data analytics tool can offer scalability and flexibility. As the business grows and the volume of payment data or external sources increases the tool can be easily scaled to handle larger and different datasets and accommodate evolving analytics needs. Depending on the business needs, often it can provide the flexibility to adapt and incorporate new analytical techniques, algorithms, or data sources as technology and business requirements evolve. 

Building Disadvantages: 

• Development and Maintenance Costs: Building an in-house payment data analytics or reconciliation tool requires significant upfront investment in terms of development resources, skilled personnel, infrastructure, and technology. There are costs associated with designing, coding, testing, and deploying the tool. Additionally, ongoing maintenance, updates, and enhancements are not to be underestimated, continuous investments, both in terms of time and resources might be required 

• Time and Time-to-Market: Developing an in-house payment data analytics or reconciliation tool can be very time-consuming. It involves various stages, including requirements gathering, development, testing, and deployment. The time taken to build and launch the tools can be quite long, often taking years and it might delay the availability of critical insights from payment data, potentially impacting decision-making processes. 

• Expertise and Skill Requirements: expertise and knowledge in data analytics, software development, and data engineering are required. Businesses need to have or acquire the necessary skills and talent to design and build the tool effectively. If the required expertise is not readily available in-house, additional costs will be incurred due to hiring or training personnel with the required skill set. 

• Integration Challenges: Integrating the newly created tool with payment service providers, existing systems, databases, and infrastructure can be challenging. It may require seamless connectivity and data integration across multiple sources, such as payment gateways, databases, and APIs. ETL processes, compatibility issues, data quality concerns, and potential disruptions during the integration process may arise, requiring careful planning and coordination. 

• Opportunity Costs: While building such tools resources and attention from other strategic initiatives are being diverted. Businesses must consider the opportunity costs of allocating resources to develop and maintain the tool internally instead of focusing on their core competencies or other revenue-generating activities. 

Nowadays it is fundamental to have the right tools and solutions to deeply understand your payments data and ensure smooth automated processes. Building or buying such solutions has its own advantages and disadvantages.

At Congrify we are helping businesses in managing their payments data, unlock hidden insights and automate reconciliation processes.

To learn more about how Congrify can help your business succeed, get in touch using the contact form or drop us a message to [email protected]