Descubre el futuro de las finanzas en América Latina y el Caribe

The future of finance in LatAm & the Caribbean

O futuro das finanças na América Latina e no Caribe

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Predictive finance: how uniting ERP systems and banking can push the financial industry forward

Feb 27, 2023

By Roberta Prescott

Predictive finance: how uniting ERP systems and banking can push the FINANCIAL? industry forward

In the current environment of open finance and artificial intelligence (AI), so-called ERP banking is emerging as a trend to generate much more predictive finance.

Enterprise resource planning (ERP) systems —an essential part of corporate management for decades— have emerged as a new medium through which banks and fintech firms offers can reach the businesses using them.

In the current environment of open finance and artificial intelligence (AI), so-called ERP banking is emerging as a trend to generate much more predictive finance. An ERP system that processes data from value chains with a comprehensive vision of the business, and knows when more cash flow is needed, is a potential channel through which banks can offer lines of credit.

It’s also niche with increasing possibilities for exploration of innovative products, in the areas of investments, insurance, pension plans and foreign exchange—and Brazil is at the forefront.

Everything revolves around management software, according to Eduardo Neubern, chief executive officer of TOTVS Techfin, a Brazilian fintech offering business administration software.

“Every financial transaction begins or ends in the management software. Everything is linked in the ERP,” he says. “We know exactly when cash will run short and the exact moment to help the customer,” he adds.

A series of corporate tie-ups in the last few years underscore the growing interest in ERP banking.

In 2020, fintech solutions provider StoneCo bought Linx, a Brazilian management software firm focused on the retail sector. The following year, ERP company Omie acquired the digital bank Linker, with the aim of expanding its gamut of banking, credit and collection services.

And last year, Itaú Unibanco announced plans to buy a 50% stake in TOTVS Techfin from Brazilian software company TOTVS for R$610 million (US$119 million). TOTVS Techfin offers data-powered financial services integrated into management systems and targets business clients and their network of suppliers, customers and employees.

Simliarly, Bradesco and SAP Brazil announced last year plans to jointly develop a platform called BradescoOne to integrate the bank’s services into the SAP Business One solution, which is aimed at small and medium-sized enterprises (SMEs).

 

Expected convergence

The focal point for companies working on the convergence between ERP and financial services is to make it easier for customers, be they large or small companies, to carry out operations.

“It’s natural to look for something more seamless, without friction,” says Marcelo Queiroz, strategy and new business leader at ClearSale, a chargeback and fraud prevention company.

In Latin America, Brazil is furthest along this path, and offers lessons for other countries in the region looking to develop their own data exchange schemes, according to experts consulted by iupana. Analysts view alliances between technology and finance companies as a win-win, and they see open finance as an accelerator, since it enables account aggregation, payment initiation and transaction movements from a single screen and in a just few clicks.

“This will reshape the experience for B2B customers, because by adding the data from open finance to that from the ERP, it can give you a degree of certainty that’s like having your finger on the company’s pulse,” says Bruno Diniz, MBA professor at USP/ESALQ and a partner at consultancy Spiralem.

While ERP banking has the potential to add value, companies aren’t yet able to take transactional data from customers in the ERP and convert it into relevant data for decision making, according to Fernanda Ferraz, head of Wiipo, a fintech spun off from the business management software company Senior Sistemas. “Banks never used to care much about the customer system but they’re increasingly reaching out to us. We view that as an opportunity,” she says.

Operational efficiency increases when financial transactions are made through the ERP, because they’re faster, safer, easier, and mean there are fewer people doing tasks manually, Ferraz says. She cites accounts receivable management, invoice issuance, and reconciliation as examples, adding: “It’s a simple product that brings a big operational improvement.”

Thiago Ferreira, head of ERP BackOffice products at Senior Sistemas, agrees that the integration of participants streamlines processes and, depending on the size of the companies involved, can free up staff by automating tasks. “There’s a huge gain in the decision-making process, which is made more seamless for users who move to a single point of access,” he says.

 

Is ERP the new internet banking?

ERP banking is a concept that’s still under construction but it’s happening in real time. Omie is one of the companies at the center of the movement. Founded in 2013, the ERP platform provides financial services and banking solutions, such as digital accounts, credit cards, and accounts receivable management to nearly 115,000 SMEs.

The fintech also offers boletos bancarios, a popular voucher payment mechanism in Brazil that allows consumers to pay for their digital purchases using cash. “It’s a method that traditionally has a lot of friction, but we work to allow the client to issue bank receipts with a single click,” says Gabriel Siqueira, the company’s head of tech ventures.

Omie began producing boletos using APIs, which saved users the trouble of visiting their bank —physically or virtually— to receive them. Its system has since evolved and added other functions, including transfers, bill payments, taxes, and PIX.

“One of the great challenges for business owners was to have everything reconciled. When you bring financial solutions to the ERP system, everything is already reconciled, which save a significant amount of time, as well as providing a better vision of cash flow and a jump in productivity,” Siqueira adds.

The acquisition of Banco Linker was a strategic complement to Omie’s vision. “As we get to better understand a company’s financial daily life through management tools, it becomes easier to do credit analysis,” says Douglas Henrique Garcia, Linker’s product manager. Apart from Linker, Omie also has alliances with banks (such as Itaú) and fintechs to expand its product offering.

 

Advancing with open finance

Open finance should further boost the synergy between banks, fintechs and ERP.

“Open banking and open finance both offer benefits, but above all they contribute a lot to the product offering, because they combine customer information in the ERP with their behavior when banking, which previously only banks knew,” says Fernanda Ferraz, the head of Wiipo.

Ferraz says one of the main challenges facing ERP banking is to get large banks to make open APIs available and share the information. Fintechs have a certain advantage in this respect, since they are digital from birth, which makes integration easier.

Such is the case of TOTVS Techfin. Its executive director says that while integrations don’t depend on open finance, they will benefit by gaining scale to provide intelligent, data-based offerings.

The Brazilian software giant is licensed by the central bank as a direct credit company (SCD) and is therefore authorized to offer clients credit using FIDCs, a fixed-income investment instrument. It hopes to increase capital and gain a more accessible, predictable, and efficient source of financing, according to Neubern.

TOTVS Techfin currently offers credit lines and advances against receivables that can can be processed in just three clicks. It has also automated a total of 10 million payrolls for 9,000 companies.

TOTVS Techfin was set up in 2019 with the purpose of expanding the access of TOTVS clients to financial services, initially with payment solutions. About two years ago, it expanded its service portfolio, catching the attention of the banking sector. Itaú’s acquisition of a stake in the company by was approved by Brazil’s securities regulator in November and is awaiting the central bank’s blessing.

“We’re entering our fourth year, we’re in a phase of expansion and growth in the offering, and it was in this context that the joint venture with Itaú happened. We partnered with the largest bank in Latin America to do more,” Neubern said.

 

Who will be the winners?

This is a difficult question and it all depends on how opportunities are managed. The experts consulted for this article say that the use of data (with customer consent) allows firms to make more relevant —and increasingly more personalized— product offers, which together with AI tools, generates predictive and contextualized models. This will lead to the development of killer applications, which are critical to consolidating a trend.

Bruno Diniz, the analyst, sees room for more players to enter the field and says companies should see ERP banking as an opportunity to seek partnerships rather than trying to do everything themselves.

“We are moving towards an environment where platforms with a better user experience and better delivery will be the primary point of contact. There’ll be a fight between players to see who’ll have the day-to-day relationship with the client. The ERP banking strategy is also a way to go beyond banking,” he explains.

Predictive finance is getting closer but steps must be taken to make it possible. “It’s something we’ve talked about for a long time. When it starts to contribute intelligence, it becomes more than simply reactive. It’s about seeing what the company needs, and when that can be foreseen, it adds value to the business,” says Wiipo’s Ferraz.

There are already solutions that integrate predictions into ERP; for example, identifying whether the client will have a gap in cash flow and require a loan to get through a critical period.

“We’ve been working for approximately two years with the insights tool and today it already operates in several ERP modules, such as taxes and accounting,” says Ferreira, from Senior Sistemas. “We’re now working to connect this intelligence to banking. ERP banking has paved the way for personalizing financial services for the client —very much in line with predicting— in order to offer what’s most important to the client.”

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