Payment Factory

BNP Paribas describes three models in its summary on payments centralization. In a payments hub, the accounts payable teams of different group companies work on one technology platform, but each keeps its own bank accounts and banks. In a shared service center or payment factory, the processing itself moves to one or a few centers, and the group usually cuts its number of banks and bank connections in the same project. In the third model an in-house bank pays on behalf of the group companies from a single account per currency and books each payment on the intercompany account of the company that owes it.

An article in The Global Treasurer draws the line in a similar place: one type of factory routes the payment files and bank communication, the other also changes the flows, for example by turning cross-border payments into domestic ones, and that type usually needs an in-house bank.

Paying on behalf of (POBO) only works if the supplier can still tell who paid. Before SEPA, a group needed euro accounts in each country. Since 2009 a company can hold one euro account for all its entities, because SEPA no longer separates domestic and cross-border euro transfers. The ISO 20022 formats behind SEPA have a structured field for the entity on whose behalf a payment is made, and the payment systems of the group have to fill it, or suppliers receive money they cannot match. The same model in reverse is collections on behalf of (COBO), where customers pay one central account for invoices of several group companies. The ISO 20022 migration page covers the message standard.

Section 2 (1) no. 13 of the Payment Services Supervision Act (ZAG) excludes payment transactions and related services within a group from the license requirement. In its guidance after the PSD2 implementation, BaFin first read the exemption narrowly, so that it covered only payments where both payer and payee belong to the group. A payment factory paying outside suppliers would have needed a license.

Business associations, coordinated by the Verband Deutscher Treasurer, objected, and BaFin agreed to read the exemption in light of its anti-money laundering purpose, as PayTechLaw reported. A group running central payments needs no payment license if four conditions are met at all times: service contracts with the group companies, documentation of every payment, binding group-wide rules with processes and systems that include anti-money laundering measures, and regular checks by internal audit or compliance. A central purchasing company that pays all suppliers was not covered by BaFin's letters.

Lower cost was the first argument for payment factories. At a 2015 treasurers' roundtable reported by Treasury Management International, fraud prevention had overtaken cost savings as the main driver. RTL Group's factory covered about 90 percent of its 300 entities and nearly 99 percent of its payment volume, around 400,000 payments a year. Treasurers on the panel screened payments against sanctions lists before sending them, and one group's rule was that no payment is made on a telephone instruction, a rule that also blocks the typical CEO fraud.

The instant payments regulation adds an automated control. Since Regulation (EU) 2024/886 made verification of payee mandatory in the euro area, the bank checks each payee name in a factory's bulk file against the IBAN before the file is executed, and a file of thousands of supplier payments needs clean payee data, as the verification of payee page explains.

Finance Loop is the meeting place for treasurers, cash management bankers and the payments people who build the rails a payment factory sends its files over. It connects the finance, IT and AI communities in Germany, Austria and Switzerland, with events in Frankfurt, Munich, Berlin and Hamburg.

Finance Loop supports When Banks Say 'No', a half-day payments seminar in Frankfurt for compliance, treasury, finance, export and legal teams on blocked payments, de-risking and sanctions. Finance Loop is also media partner of Capital & Code, a Frankfurt conference whose audience includes corporate treasurers who manage liquidity and risk.

A payment factory is a central unit, often part of group treasury or a shared service center, that makes payments for all companies of a group. It collects approved payment requests, creates the payment files and sends them to the banks over one set of connections.

A payment factory processes payments for the group companies, which may still pay from their own accounts. An in-house bank goes further: it holds intercompany accounts for the group companies and pays on their behalf from its own bank accounts, one per currency.

POBO stands for payments on behalf of. A central group company pays a supplier for an invoice owed by another group company and names that company in the payment message so the supplier can match the money.

Usually not, if it pays only for its own group and meets the four conditions BaFin set for the group exemption under the ZAG: service contracts, documentation, binding group rules including anti-money laundering measures, and regular internal checks.