ERP Integration: A Complicated Necessity

Cheryl Brown

In this episode of The Purposeful Banker, Dallas Wells welcomes Kathy Dwyer from the Q2 product team to discuss the growing demand for integration between companies’ ERP accounting systems and their digital banking platforms.

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Transcript

Dallas Wells

Welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm Dallas Wells, welcome to the show.

Today I'm joined in the studio by Kathy Dwyer, who is the senior director of product management at Q2. Kathy oversees the team that runs the commercial side of our digital banking platform. As you can imagine, this has been a very busy area for us, and Kathy and team have had their hands full. So we'll have lots of stuff to talk about today. Kathy has a ton of experience in this space and is one of my absolute favorite people to talk shop with. So Kathy, welcome to the show.

Kathy Dwyer

Thank you very much. I'm very excited to be here talking about all things commercial.

Dallas Wells

All right, so before we jump into it, Kathy, I believe it is your first time on the show, so give us a little bit of your background, and experience, and how you landed here at Q2.

Kathy Dwyer

Sure. Yeah, I actually started my career as a high school math and computer programming teacher many, many years ago, and decided in the late ‘90s to get into software because it was very exciting. And happened to, I guess with my math background, happened to land a job at Fiserv working with their cash management software at that time. And I had some fantastic teachers who taught me everything there is to know about commercial banking as well as had an opportunity to go around to hundreds of Fiserv financial institutions and learn banking operations and just nuts to bolts how everything is done, which really helped me as I moved along over the next 25 years in figuring out what's the best way to build software that best supports financial institutions, but at the same time their corporate clients as well.

Dallas Wells

Great. So you and I both came into this business, I think from different but similarly unique paths, and so my first job in banking was probably around a similar timeframe, and it was a summer job in the middle of college as a teller in the drive-through lane. I say that just so I can give a little bit of context of what we've seen over the last couple decades at this point in doing this. My training program I had to do in the basement of that local community bank, because it was one of the two computers in the bank that had internet access. So that's just context of where we were, and now where we are over the last couple decades. And so lots of progress, especially progress in the land of commercial.

And it feels like before we get into specifics, let's talk kind of generally. It feels like for all the talk around digital transformation it feels like in the commercial arena, it's like finally here. We're finally pulling some of those processes out of the paper world, and into the digital. Talk about some of that momentum maybe, and what that's felt like especially recently.

Kathy Dwyer

Yeah, I think that we're finally getting to a tipping point. Obviously the technology has been available for quite some time to really make digital transformation in commercial banking there. I think that one of the pieces that was missing was truly the commercial entity's ability to take that technology and figure out how to make it something that drove efficiency and return on investment within their organizations. And it seems as though we have actually gotten to that point. I think the other piece that ... So I was kind of more relating that more to the higher end of the market, but the other piece that is important as well is we're seeing more and more small businesses who want technology-driven solutions at a higher rate. And so even though it's maybe slightly different, it really kind of pulls the whole thing in, and the full circle. And I think that's where we're really seeing that the digital transformation is finally taking over commercial banking.

Dallas Wells

I think that you make an interesting point there that we say commercial, and we say it as this umbrella term, but we're talking about some very different ... There's a very wide spectrum there, and so you've got one in small businesses, and so their expectations around digital come from this sort of consumer world, and they want it to look and feel and function like consumer digital tools. And then you've got the other end of the spectrum, which is these larger, more complex, more sophisticated businesses, and really where you've got full-time staff managing payables and receivables. So I think that's probably where we'll dig in a little bit today is first of all kind of balancing that spectrum.

And then second of all, at that higher end, what that actually looks like because we're not really talking about for a financial institution necessarily building a bunch of tools for those employees to be inside of all day every day. Instead, we need to connect to the places where they already are, and try to meet them in those places where that workflow's already happening. And so first of all, before we get to those specifics, that balance between the two, how do you see financial institutions manage that commercial but this wide spectrum, and this very divergent levels of experience, and sophistication with their user base?

Kathy Dwyer

I think it's difficult for FIs because of a number of reasons, but first of all, they're excellent in commercial teams at very hands-on approach, and that's great when you have a couple of hundred customers. It doesn't work as well when you have thousands and thousands of small businesses in there as well. You only have a certain set of people who are experienced in that realm, and you either need to have a ton more people, which is not necessarily financially good for the bank itself. But on top of that, then you have a lack of ability really to get to all of those small business customers. So I think for FIs it's a struggle, and again, it's kind of where there's an opportunity for Q2 to come in and be able to offer a helping hand with technology solutions to support the onboarding of these smaller customers, or the support of ongoing growth of some of those smaller customers so that they can take a more hands-off approach to some of them, but at the same time still be able to implement them on the solutions that they're going to need.

Dallas Wells

To probably oversimplify it a little bit at the smaller end, it's about self-service tools and making those easy enough to use for the actual businesses, the end users. And then at the top end of the market it's more about efficiency of processes and getting things clean and correct.

Kathy Dwyer

And a hands-on understanding truly what that customer is looking for and having a little bit more of a hands-on approach.

Dallas Wells

So for those larger businesses, we were hearing from our customers, so our banks and credit unions, "You've got to do ERP integration. You have to integrate with those systems." So let's start with just for those listening, what the heck is an ERP system? What are we talking about there?

Kathy Dwyer

So yeah, ERP and accounting systems really can mean a lot of things to a lot of people, and that's the tricky part about it. So usually an accounting system is geared toward accounts and the financial teams in the companies themselves, but once you open up to an ERP, you could be going into HR, you could be going into your customer CRM system. It could be full invoicing. I mean it really can run the spectrum of different services that a company is going to need to use. And it really depends on the company and what modules they've implemented within these ERP systems. So a lot of companies will say at …

FISPAN did a study recently where they said about 70% of larger enterprisewide financial companies were utilizing ERP or accounting systems. But when you delve down a little deeper, what you saw is in the first three years of implementing those systems, they're really using one or two modules, and then they slowly ... Once they recognize, "Hey man, there's a value here for me to use this," they start to kind of build on that and continue to build on that. And so that is one of the difficulties with ERP systems is there is a vastness to the amount of functions they can provide for a company, but it is really important to understand what the company is using and how they're using it in order to best support them.

Dallas Wells

So the difficulty there, if you are a bank or a credit union and you get that request, “You have to connect to my ERP,” that could mean one of dozens or hundreds of different specific solutions. But really what it comes down to is they're wanting to manage those payables, receivables, payroll—those sorts of things that they're actually starting to initiate money movement in some direction or another, and they don't want to have to enter that in one system and then come back and actually then make all those transactions happen inside of a digital banking platform. They want those two things to be connected.

So you and your team have come up with an approach to that. You're using rather than this ERP, and making all these one-off connections, you're talking about it more in terms of direct data. What do you mean by that? What's that phrase mean to you all?

Kathy Dwyer

Our direct data strategy really comes from the fact that we recognized that we need to offer solutions that meet these customers where they are. And that's kind of how we describe it. We say if you are using a standard, commonly used accounting or ERP system and you want to have a plugin or an app that's precertified to integrate directly into it, then that is part of our Direct Data Services offering. If you are utilizing an accounting system and maybe you send payment files once a week every Thursday, no matter what, you kind of have a scheduled time, then you are the type of company that file integration via an FTP server is completely appropriate, and actually is probably the easiest thing that you could utilize and set up.

And then there is that middle ground of companies that may have an accounting system that isn't as widely utilized, so it might not have a direct connection or it might be like a homegrown system. But as long as they have a technology group within their company who has the ability to do API integrations, then they may want to actually do a direct API integration between the two. It's particularly useful for companies that might want to send payments and they don't have a standard usage of payments, so they're kind of doing one-offs or it's not something that's scheduled, it's not something that's a standard timeframe. API integration is appropriate.

So we kind of call the combination of all of those three things, file direct API, and then direct ERP integration, like a layered approach. And that is truly what our Direct Data Services solution is all about. It's kind of being able to offer any of those channels, whether it's to send payments in, or to pull out account data from your FI.

And the awesome part of it is that for a bank being able to support API integration, file-based integration within their operation center is very difficult and it's very time-consuming, and it is prone to a lot of mistakes. But by taking it into Q2 and our digital banking platform, we remove the security concerns, the support concerns, and we really allow the banks to become more efficient with the solution itself. That's what we have been working on building out, and we have FIs currently implementing.

Dallas Wells

So I think the other thing that's been interesting about this space is it feels a lot as you start to talk about the technical terms, and the capabilities that are there feels a little bit like plumbing, and it just sort of either works or it doesn't, and that basically it becomes table stakes as you work your way up in size. As you want to serve larger and larger customers, you just have to be able to do this, and it feels a little bit like a commoditized service in some ways. So what are some of the ways that financial institutions can kind of differentiate themselves with these sort of offerings other than just either I have it or I don't? Is there better versions of this, and is there a better experience for end users that can be offered with this?

Kathy Dwyer

Yeah, I think the key—this has come directly from some of our customers in discussing it—the key really for FIs is to have the solutions available and know about them and understand them, but also to be able to understand what is the appropriate channel for that customer. Because I think that as we move forward with this, the FIs that are really going to truly win out and win more business utilizing a solution like this are going to be the FIs who can say to a customer, whether it's a customer on the lower middle range, or the upper range, you're in this type of vertical, you're doing this, I see you're doing payments twice a week, homeowners association payments twice a week in four groups throughout the month.

What would be really great for you is to use our file-based channel because you're using Yardi ERP system, and we already have a setup and a standard file format for Yardi. And making that because then there's no company that's going to hear that from their bank and walk away and say, and now maybe I'll try another one. I mean because essentially saying, "I know who you are, I know what you're doing, and I have the right solution for you." And I think that's where banks are going to be able to differentiate themselves.

Dallas Wells

OK, makes sense. So finding the right fit, the right tool for the job. And so in cases, on the simpler side of things, right, it's fairly easy to keep track of what a payment's for. You don't get a ton of things hitting the accounts and have to kind of go back and reconcile this huge volume of invoices. But at the other end that where you have thousands, tens of thousands of transactions happening, and this random $4,500 check shows up, what is this? Where did it come from? What do I mark as paid in my system? All that stuff becomes the real task to be done. So maybe talk a little bit about that of how we move from just like the dollars and cents moving around, how do we connect it to the associated information that goes with that payment?

Kathy Dwyer

Yeah, I think that is what is key about having these integrations, particularly for these larger companies. That's the value for them without a doubt. It's like what I call the full circle. It's not just I made a payment, or I got a payment, it's I can connect it to my system of record so that I can show it as a closed invoice, or I can show that I have it paid myself. And so whether it's receivables or payables, the ability to systematically automate the reconciliation of those is really what these corporate customers are after, and what these ERP and accounting systems can do with the right information, and that's the key.

So being able to send payments out is great, but you also need to be able to get confirmation back on that as well as then, in the return trip, see those debits or credits happening on your accounts. And in a perfect world, you would also hopefully be able to see invoice numbers and things like that, which is one of the places where I think there is still great strides to be done. And obviously real-time payments is trying to make those strides. It's just there hasn't been enough pickup of real-time payments yet, but it has the capacity to fill that hole, that little hole that we still have left which says, "Hey, I got this payment but I don't have the invoice associated with it." Because that's the key. And I think integration with ERP accounting system gets you 85% of the way there, but that little piece is still missing, and real-time payments has the capacity to fill that in.

Dallas Wells

Interesting. So all the focus on real-time payments, of course it's right there in the name, right? It's been on the real time, and how fast the money moves, and in all reality, maybe that's not the real potential value, and upside for a business.

Kathy Dwyer

Yeah, for a business, the upside is, without a doubt, being able to attach that data with the payment, or the request for payment. Then also it's the conversational capacity of that payment. It's the receiver of the request for payment being able to come back, and say, "Oh, you know what? That is the wrong invoice number. Here it is." And you can correct that, and resend that information, and have a trail of all of that. So now you connect to …

Dallas Wells

... cancel, and start over, then …

Kathy Dwyer

That's right. It is a conversation that you can keep track of. I mean that's very, very powerful, and quite frankly really shows some of the mastermind of the payment systems in the United States because no other system in the world has that kind of conversational capability. And so, given that alone, at least on the commercial side over the next three to four years, I feel a 100% confident that we're going to see a huge uptick in instant payments for that purpose alone.

Dallas Wells

So I think I'm in agreement with you there. It feels like there's real upside, but has been how do we get that momentum started? So it's like this, we've turned on the systems, and there's lots of folks ready to receive, there's very few ready to send. Does that feel like we're starting to make some baby steps of early progress there?

Kathy Dwyer

I mean, I do think … just last week we had both The Clearing House and The Fed, and speaking to them, they've had a huge uptick just in the first couple of quarters of banks who are actually being able to send payments and getting some sent through. So I think that's good. I do think that it really comes down to the FIs being able to implement the technology and support it. It's a 24/7 365 world, and it is not something that banking is used to having that available. And that's scary and difficult. You have to figure out how to do it.

Dallas Wells

I think that staffing thing that's been, as you've been talking, that's clicked something in my brain a couple times. So it's that can we get the staffing to match the availability of the technology? And then also as you have this very deep tool set that now even smaller community institutions can have the ability to offer, you have to have the staff to be able to run it, maintain it, inside your own walls, and maybe just as important be an interface to your customer base to help them through it, to help them troubleshoot, to offer support, and to kind of help them evolve from that side hustle to a micro business to a small business, and kind of up the chain and up the level of complexity.

And you’ve got to figure out when do we move them to the next set of tools and get them trained and up to speed? And what do you see our customers, our banks and credit unions, what do you see them ... How do you see them handling that? Are they prepared for all those staffing and knowledge and skills, or is that a real area of need?

Kathy Dwyer

I think it is an area of need, which is one of the reasons why I think that some FIs are slower to take up Direct Data Services, take up real-time payments, because they recognize, and it's very responsible. They recognize that, “Hey, I might not be good enough at this yet. I have to figure it out myself, and then I'm going to be ready to take it on.” And I would say that from the FIs that we have had who have implemented our direct payable solution, they said it was a learning experience, and they learned a lot about how they needed to speak with customers as they were implementing it, what were the questions that they needed to ask.

And also, quite frankly, we learned a lot at Q2. What are some additional things that we need to provide to our FIs to help them a little bit more, and to give them a little bit more information and make sure that they're comfortable with the technology solution so they can really make it best for the customer? So I do think that is why there's been some hesitation by some of the FIs, but it is moving forward, and I think one of the biggest ways, reasons for it moving forward is because their commercial customers are asking for it.

Dallas Wells

So on that note, the demand for it, how much pressure is there really? And kind of like is this a meaningful enough market for most institutions to lean into, especially given the need for just deposit balances, and potential fee income?

Kathy Dwyer

I think that on the high end of the market, it's kind of becoming table stakes. You have to have it because you're not going to win those companies if you don't have the integration available to them. And it could be different channels, but you need to have something that you could say, "Yes, we can do that." And I think as you go down market, it's more of a nice-to-have type of a thing at this point. As far as we can see from some of the requests that we're getting, it's continuing to move down market as something that, "Hey, I require this in my relationship with my bank." So I think we'll continue to see that happening. Hopefully there will also be a consolidation of the ERP and accounting market because otherwise it's going to be very difficult for these FIs to accomplish a direct connection to all of these different ERP and accounting systems.

Dallas Wells

Maybe just tangentially related, this whole space used to be the realm of the banks and maybe occasionally a rare credit union. And I think one of the interesting trends that we've seen over the last several years is more and more credit unions moving into this commercial space. And so we've seen the batting average there has a high variability, let's say, right? So there's some that say, "Yes, we want to do commercial." And so they buy the tools, and they're like, "Hey, we turned all these on, and nobody showed up," but they forgot the part about how hard this stuff is to sell and that you have to have the in-house expertise. And then we've seen others who have nailed it, right? They've brought in the teams, and they've done it kind of the right way.

So first of all, how common is that that you're seeing credit unions venture into this realm? And second, maybe are there some got-to-dos, some things that are kind of must-haves as you maybe are a brand new entrant into this world?

Kathy Dwyer

The one thing that I've definitely seen from our credit unions is what a lot of them are doing is actually going out and purchasing small commercial banks. To me, it seems like a well-placed strategy because you are at least going to get an operation system that is set up, some resources that have some knowledge. I think where we've seen the most struggle with our customer base are the ones that say, "Hey, I want to get into commercial. Now, let me set everything up and try to get the right people, and then just start from scratch." That's basically starting a new bank, which is pretty hard. Takes a lot of work.

Dallas Wells

So we've touched a little bit on ERP stuff, a little bit on instant payments. What are some of the other big areas of focus that you see for you and your teams and the customers you're building for?

Kathy Dwyer

I think as we look at the Direct Data Services and what's available, particularly on what I'll call the account reporting data side, we are going to be spending a very large amount of our effort over the next year, year and a half on information reporting and data and how we make it available to all of the different customers, whether it's the customers that don't want to log in and they want to get it to their accounting system, or the customers that want to log in and they want to see everything in one place. And then how do we make that available to them so that it is sufficient for their grouping of information that they need, but flexible enough so they can make it what they want. And I really think that the next step in ensuring FIs have a full range of digital solutions for their commercial customers, whatever size they are, is ensuring that we have the right data and it is displayed to the end user or provided to the end user in the best way possible for them. I think that's truly the next step.

Dallas Wells

So of course we're going to talk technology, and digital transformation, and we're going to mention data we can't wrap up before we also say what about AI? So in commercial digital banking, where are we starting to see AI show up, and where are you expecting to see it get baked in a little further in the coming quarters?

Kathy Dwyer

Yeah, I think we're starting to see it come up more and more. And then, obviously, where we are going to be utilizing it is in … we talked a little bit about the small business customers and self-servicing. I like to refer to it as we've seen a lot of self-servicing out in the market, but a lot of it is not smart servicing. And so that is a place where I think AI can really help FIs to ensure that the experience with the end user is really positive and very pinpointed to what they really need and what they can really do. It will help the FIs from a user experience, but it'll also help the FIs from a security perspective and a legal perspective.

And there's a lot in there that it can really help, and then to continue to drive that efficiency from an operational perspective within the bank, and how they get these customers onboarded, etc. And that's kind of where we see a big opportunity. On the flip side, there's definitely, in the data piece of it, which I was just talking about, which is OK, once you have all of that information and you know what's available, there is opportunity there as well to drive better insights for the banks as well as for their corporate customers, without a doubt utilizing AI there.

Dallas Wells

I think some of the obvious places that we'll see the earliest signs of this, there's so many disjointed solutions that we kind of stitch together to make all these different processes work together. And so one of the things that especially the newest generation of AI are really good at is sort of this little baby automation, like taking little bits of information from one system and being able to move them from there to the next one. So as a customer moves kind of down the conveyor belt, you don't lose all that context as they go.

And then I think the other one you described well is just the ability to keep some of that intelligence. One of the things we talked about here today was being able to service those customers, answer their questions, make sure you have the right fit. Those are things that your back-office staff can be using that technology beside them, and the chair beside them is this copilot concept of helping them summarize all this complex information and very quickly get to the relevant stuff. So you still want a human in that loop, you still want a person doing those interactions and making those decisions, but they've got this tool to kind of speed up that process and get them the right information at the right time.

Kathy Dwyer

It's like having an extra support person with you to ensure that everything is right, and also that end user is having a much better experience.

Dallas Wells

All right, well, Kathy, I think we will wrap it there. Exciting times in digital banking in the commercial world. So thanks for taking time out to talk through it with us and join us. Hope to have you back again soon.

Kathy Dwyer

Great, thank you so much.

Dallas Wells

All right, so that's it for this week's episode of The Purposeful Banker. If you want to catch more episodes, please subscribe to the show wherever you'd like to listen to podcast, including Apple Podcasts, Spotify, Stitcher, and iHeartRadio. Let us know what you think in the comments. You can learn more about the company behind the content by visiting Q2.com. Until next time, this is Dallas Wells, and you've been listening to The Purposeful Banker.