[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. – EMc]
Keynote Address: Managing the Changing Mix of Payments
Brian Hurdis, President, Metavante Image Solutions
[program blurb] This high-level presentation provides a state-of-the-industry analysis of the changing payments mix and how these changes offer both opportunities and challenges for financial institutions and corporate billers. The speaker will also discuss how to develop a plan for managing the complexity of multiple payment types and strategies for the processing and effective settlement of payments.
Remarks were toward banks rather than corporates (naturally as Metavante is a bank technology company) but there were a few tidbits relevant to businesses/billers.
Hurdis co-opted war-on-terror verbiage as he characterized Remote Deposit Capture (RDC) is "The weapon of mass truncation in the war on rising payment costs." Majority of banks rank merchant capture as the top technology spending priority because they perceive it as an essential survival strategy in order to attract and retain business customers. 64% of banks report that offering remote deposit capture enabled them to attract new customers. Yet as more and more banks offer merchant capture it becomes less of a competitive advantage.
Remains best for biz with multiple locations (consolidate acct), distant from branch (reduce transportation costs), or businesses with high percentage of large dollar checks and limited cash deposits. Classic hockey-stick ramp up of deployments and items processed creates challenge in managing so many end-points for image processing. After initial landgrab opportunity, banks will have to offer better services to poach competitors’ customers. Estimated 2 million remote capture end points by 2010.
FIs are evaluating opportunities to outsource lockbox/receivables – more of an opportunity to develop revenue. Receivables payment trx volumes grew 18% from 2006-2007 at 6 of the top 10 cash management banks. Yet, a mature market with modest margins. How can banks address continuing margin erosion as transactions shift from paper to electronic. Not outsourcing process, but the technology enablers. Transaction volume is migrating from paper to electronic at varying rates depending on segment (consumer vs. B2B payment). Hosted solutions offer speed, ease of implementation, flexibility and minimal investment. Tied to image exchange in order to offer comprehensive solution featuring remote capture, ARC, automated keying, IRD processing, and integration with other payment systems (payables, online banking) to provide value-add. Tightly integrated solutions are primarily focused on solutions for healthcare, government industries.
Image Exchange. Nothing new, but there have been a number of changes. Accelerated shift to electronic, fewer opportunities to clear checks cost effectively. Yet checks won't got away for a long time, so how to optimize processing in the meantime? Fed driving pace (down to 4 centers by 2011). Interoperability due to reciprocal agreements between Endpoint Exchange, Viewpointe, SVPCO means that nearly all end-points will become image-enabled, regardless of asset size and check imaging platform.
New payment types – debit cards, online bill pay, mobile. Fastest growing payment type = debit. Shifting from check and cash. 2nd largest DDA fee source for many banks, after overdraft fees (18% of DDA revenues). McKinsey 44 billion debit card trx in 2009 (vs. 19 billion in 2004). Used for more than 22% of US personal consumption expenditure by 2015. Debit represents $9 billion of total $209 billion payments industry revenue. Online bill pay is nothing new, but it is "absolutely taking off" largely due to demographics. Young consumers are accustomed to online transactions and aren't visiting banks. Mobile banking anticipates mobile payments – whether checking balances via phone browser or downloadable application, SMS transactions. Ultimately cell phone will be electronic wallet (when is subject to debate). Challenge is in developing a business model that balances demands of wireless carriers, banks, and payment processors, as well as understanding and mitigating impact on fraud, clearing, processing.
Enterprise payment management (holistic) – do banks need a payments management system to manage various payment silos and separate operations functions (Metavante thinks they do!). How to manage migration of volume, fraud and risk, operational efficiencies, impact on clearing and settlement. Hard to manage and prevent fraud across channels. Duplicate items from across paper and electronic payment platforms are growing – 5-7 duplicates for eery 1 million trx processed, expected to increase 10% each year for next 3-5 years. Direct cost to resolve duplicates is $75. Duplicate detection – how long do you have to look (number of days back)? Paper checks vs. IRDs vs. RDC vs. Image vs ACH transactions. Need warehouse of transactions that combines archives of all – catch at teller line vs. back room. Once collecting all data in one archive, data mining as an opportunity to add value to transaction processing.