Host to Host payment systems

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08 min read.

The Host to Host (H2H) payment system is a direct wireline for payments to your business partners. This payment system is a digital transformation to automate a wide range of activities for enterprises to execute payment which requires the intervention of many business partners (e.g. customer, vendor, bank, employees)

What is host to host (H2H) payment systems

Host to host is a payment system where payments are automatically transferred from one party to another without intermediaries (e.g. bank) and time-consuming paperwork. Provided that these transactions are pre-authorised and verified by the bank and its customers. 

The H2H payment system reduces the business efforts when processing bulk payments (e.g. payroll). Also, this system will eliminate any possibility of human error.

Uses of the host to host (H2H) payment systems

As already mentioned, the H2H payment system can be used as a payroll processing system, or this can be integrated into the ERP system (Enterprise Resource Planning) of the enterprises and their partners.

This system also generates voluminous data, which instantly shows businesses the amount and timing of cash movements. Hence, cash issues can be analysed and detected quickly, and timely corrective actions can be taken.

Latest trends replacing H2H payment systems

With the evolution of technology in the finance sector, payment mechanisms have changed and opened tons of business options.

Connected or open banking is a way of allowing third parties to access a customer’s financial information with their permission. This helps the parties to provide products to meet the needs of customers. Through open banking, banks and third parties can provide better services to customers.

Deferred payment mechanism or pay later where a business can enjoy goods or services instantly while the vendor is paid later. This helps businesses to manage their finance and also reduce transaction costs.

Digital or wallet payments are another means to pay easily. This payment method was most used during the pandemic as means of contactless settlement. Businesses have also developed a QR Code system where recipient details can be obtained after scanning the code.

Businesses associated with their banks have incorporated payment gateways into their websites where customers can pay instantly to access the services. Banks have event-based payments which are executed according to standing instructions given by their customers (e.g. EMI or recurring deposits)

Reasons why H2H payment systems are outdated

Today H2H solutions in ERP do not fully automate vendor payments. Due to heavy IT infrastructure dependency, implementation time for setting up a single bank’s server takes around 2-3 months. The setup & implementation time increases when the enterprises process vendor payments via multiple bank accounts. 

H2H payment system requires integration of ERPs to execute the transfer of funds; further, these transactions should be authorised and verified by the bank to avoid error or fraud, so there is an extra step of the maker-checker process involved. 

Also, H2H systems have access to only the payments data from ERP. They don’t offer access to balance across the banks to help enterprises better facilitate cash flow decisions, neither do they help with payments due/completed data for forecasting purposes.

Businesses are moving from the B2B business model to the D2C business model, where they directly interact or deal with the customer. H2H payment requires immense IT infrastructure, which may or may not be available to every customer.

The digital payment apps have made it more convenient for the customer and the business to receive their payment instantly, reducing transaction costs at both ends.

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