Host-to-host connectivity carries a number of disadvantages.
Control. With host-to-host, the bank controls your data. They decide when it is sent and what data points are shared.
Stale data. Because bank files are sent on the bank’s schedule, not yours, the data is stale, and management does not often have the best information available.
Cumbersome manual work. Bank files require the bank and the corporate to perform at least six distinct tasks before a file can actually be used.
Slow or nonexistent traceability. Even after a laborious six-step process, there is still no confirmation that a payment has been sent successfully, or that it successfully arrived to the recipient. It’s common to not receive an acknowledgement, leaving corporates in the dark, wondering if the bank actually got the file in the first place. And if a file needs to be re-sent, the company has to manually call or email the bank to request it.
Security. File-based connectivity is vulnerable to fraud. Because host-to-host connections accept file formats of any type, there are no forced data or security standards, leaving it vulnerable to data manipulation or malware-injection attacks. And because the files are stored on file servers, at some point in the life of the file, an administrator will need access to it. Host-to-host connections separate the interface and the files, which means the data in that file could be manipulated before any encryption occurs.
Setting up a host-to-host connection is no easy task, so corporates often purchase a third-party system with prebuilt host-to-host connections. These third parties providers act as middlemen, cobbling together host-to-host connections that relay data onward to other host-to-host connections, SWIFT, or to the bank. This adds yet another insecure link in the connectivity chain, further increasing the security risk.
Costs. Host-to-host connectivity channels require a heavy setup, and file servers need ongoing maintenance. The interfaces of host-to-host channels often come with an extra charge to start working, or with mandates requiring use of their proprietary system. For those who decide to outsource host-to-host connectivity to a third party, additional time and money for purchasing and implementing the solution should be expected.
Although H2H is still widely used today in corporate finance, it will soon be rendered obsolete by the new, faster and more secure technology provided by bank APIs and the automation they enable – all of which are harbingers of digital transformation.