[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]
Payments in Transition Town Hall Meeting
Joseph Sass, Senior Regional Manager, US Bank
Jay Matyas, VP & Sr. Product Manager, PNC Bank
Steve Nugent, Director, Product Mngt., First Data Corp.
Ronald Victor, VP, Receivables Product Mngt.,JPMorgan Chase
John Mintzer, VP, Citizens Bank
Moderator: Mark Brousseau, Brousseau & Associates
[blurb] This lively panel discussion will overview the current payments landscape, highlight major trends in instruments, volumes and marketplaces and then will discuss how these trends offer both opportunities and challenges for financial institutions and corporations
Q what is the big trend?
Steve, 1st Data/Remitco – Tipping point, in-house providers start looking to outsource as unit costs go up. As number of checks decrease. Most consumer checks processed in-house today. OS and lock in rate for 3 years. Hard to make business case internally – let go of something you’ve done for so long. Not easy, but right thing to do. Checks declining but consumer payments are increasing (10% increase over next 4 yrs). Prime market for Lockbox providers.
Ron, JPMC – certainly on consumer / retail side yet. Wholesale, gov’t – changes in receivables management. B2B single digit decline, but value is data from receivables. Receivables collaboration: single repository – lockbox, wires, ACH. Consolidated, not only by payment type but also across geographies. Invoice matching services are very important. [follow up Q – aren’t you competing against yourself? ACH vs. lockbox? A: Trying to find the right solution for each customer.
John, Citizens Bank – more expensive to run in house lockbox. One key area that billers should be looking to outsource – disaster recovery and contingency planning. Better to outsource than duplicate own facilities/resources. Go with provider that has multiple sites (one rational for citizens to os)
Joe, US Bank – retail volumes up a little bit YOY, at least at US Bank. Biggest challenge during transition (last12 months) is to keep very close eye on volume and match labor accordingly. Monitoring FTE on a weekly basis rather than monthly. Measuring items per hour. Very cautious on replacing open positions. Management of lockboxes is challenging – try to develop internal talent (promote supervisors) rather than taking months to hire managers from outside and paying a lot. Juggling match.
Steve, 1st Data/Remitco – Labor is 60% of retail lockbox cost. Now that image, MICR, CAR.LAR not much more innovation on the way. This is it; won’t get much more cost effective.
Q. Services mix is changing. Move away from LBOX as deposit solution and more to data capture/receivables solution.
Ron, JPMC – Customers want 8.5 x 11 paper scanned. And if you can match it, even better.
John, Citizens Bank – incorporate changes to retail lockbox. Consumers want to pay in a variety of ways. But billers aren’t embracing whole spectrum of payment methods. How to incorporate into the retail lockbox? Debit/CC trans thru web interface, or thru IVR, or thru eCheck. Hyperlink from customer website to processor website (and then tie to retail lockbox data transmission). Fair amount of interest – particularly among billers receiving payments from Checkfree, Online Resources (keep fully electronic, rather than drop to paper). Utility companies are very interested – often attempting on their own, thru service providers. Very receptive to bank service offering, with tie in to retail lockbox.
Joe, US Bank – Correpsondence. No one wants it back. Scanning information and posting to bank website for billers to view. Don’t want rejected payments (unbalanced multis, check only) – want wholesale services on retail lockbox to handle exceptions.
Q – What about interest in Inter-day exception management?
Adoption rate is sky – rocketing. It’s in every RFP. No one wants paper back (package maybe processed next day, or second day, or even later). If can resolve same day and get funds same day. Improve customer performance, improve working capital. Used to think it is too hard for lockbox processor. But now expecting lockbox to handle.
Ron, JPMC – Retail lockbox have had it for awhile. In Wholesale offering for real estate, property management (specific verticals). Another key factor is paper truncation. Eco-friendly pitch to wholesale customers. Up-sell image services as green.
Q – Archive non-payment related documents, too. New product announced recently.
Ron, JPMC – doc management is non-financial scanning. Health care documents that gov’t wanted digitized. Back log + ongoing transactional support. Leverage existing platform. Started offering service because Pittsburgh Steelers wanted online archive of photos, press clippings, etc. approached JPMC who partnered with Kodak.
Distributed capture – rush to scan checks. But what about the other info? Scannable coupon, remittance, etc. Starting to be closer to wholesale lockbox services. In fact, JPMC is developing a distributed capture product that looks like wholesale lockbox product targeted for November.
John, Citizens Bank – Remote capture and remote capture developed separately. As yet, haven’t tied in capture of info into lockbox. Silo challenges.
Joe, US Bank – still haven’t consolidated. Lockbox and remote capture is separate.
Steve, 1st Data/Remitco – Remitco is wholly integrated. Brokerage industry – lots of money, lots of branches. Big dollars sent overnight to lockbox processors. Can offer same day, fees are lower. Tied to lockbox. Checks and stubs. Can take full page docs and incorporate them but no one has taken them up on it yet.
Q – Where are we in automating healthcare payments?
Ron, JPMC – public sector (child care, parking tix,) created healthcare centers of excellence. Acquisition to bring to market faster; long sales cycles, customers have their one challenges (patient accounting software integration). EOB ICR templates to recognize information and creating image file to customer. Want to get ERA (835) elec remittance advice from customer. Varies by customer. Many hospitals with varying levels of adoption 0% – 80% direct to electronic. Huge market out there: $4 billion claims, 2 trillion dollars. But need to walk before you run, challenging environment. If you want to digitize paper and capture EOB – easy entry. But if you want to provide end to end solution, with claims management there are significant learnings. Two biggest players acquired by banks (JPMC and BofA).
John, Citizens Bank – retail lockbox, healthcare is pretty straightforward. Basic payments, strip data from OCR line and create 835 for hospital. Not as far down the path on wholesale side as JPMC. Working with vendor, trying to find better easy to capture info (image EOBs, claims matching on 837s)
Joe, US Bank – infancy. Two sites coming online with EOB processing.
Q – How well are lockboxes doing to create parallel processes?
Joe, US Bank – ops side. Complexity is being reduced. But challenge is for the product folks – how to position services, how to integrate. Create road map for product.
John, Citizens Bank – will get increasingly difficult on ops side. New responsibilities and lockbox becomes repository of data. Balancing, settlement, parsing of files. Checkfree fi
les – parse to individual customer lockbox, ensure match to check deposits, and all balance to transmission to customer. Burden on operational area to ensure funds are good and information is good.
Ron, JPMC – increase in labor, for healthcare for sure. Decision management. How long store? When truncate paper? Notifications and compliance issues (broker dealers with SEC rules, HPPA for health care). Customers own compliance / audit
Steve, 1st Data/Remitco – least cost routing – more demand from customers on how to handle clearing of items We hand off to bank,
Q – what’s going on with pricing? Retail perceived as a loss leader.
Steve, 1st Data/Remitco – not at remitco. We do a pro forma on a deal by deal basis. Determine if you are making money. Larger deals with significant buying power, may purchase other services, leverage against potential loss for lockbox. Pricing is done with as much info as possible. % volume of each exception category to determine resource needs, swag at productivity rates, I’ve heard there is a loss leader, I believe there is a loss leader out there. Not at this table! Price is what makes the deal. We all offer relatively same services, in same locations, same equipment, same software. May trip and fall once and awhile. How quickly can you get back on your feet and make sure it doesn’t happen gain. It’s all about price.
Ron, JPMC – measure on variable basis, or fully loaded? 88% of respondents believe wholesale banking is profitable. Other electronic products with higher margin. Float, liquidity. Have to evaluate the total deal, total relationship. Stand alone, wholesale lockbox isn’t always profitable.
Q – Talk to me about float? How big a factor is it?
Ron, JPMC – Still pretty key. Measure on every deal we price. Included in our internal P&L measurement.
John, Citizens Bank – in our market, run against people who are giving away float, so we do too. Everything next day availability (retail). Difficult to be profitable in a retail lockbox (scan coupon check, single check only; wholesale customers wanting to be retail so they can pay less. Bringing huge volumes. Yet there is a big upfront effort to bring retail customer online (up front costs, testing, programming, scan lines, etc). Technology getting expensive for doing things outside what is typically retail lockbox. Hyperlink on customer location that allows cc trx processing (need too build interface to), eCheck gateway to ACH system, – always costs. Lot of things that work against profitability of retail lockbox.
Q – Business process outsourcers are coming into market – takeover bank or business lockbox servicing. Does this make sense, how do they make money?
Steve, 1st Data/Remitco – evidently you can make money, people are doing it. Mature, declining market (extremely mature on the verge of ancient). But there must be a business case somewhere.
Ron, JPMC – makes sense for larger institutions. Indirect expense. OS and get off balance sheet. JPMC wants to be last man standing, work with customers to get rid of paper.
John, Citizens Bank – if vendor already has investment, adding incremental volume makes sense. New BPO entering the
Q – SaaS – getting corporate to do the capture. Is that a model you’ve looked at?
John, Citizens Bank – difficult operationally.
Ron, JPMC – remote capture, get beyond traditional footprint, compete where you could not historically compete. So applicable in wholesale. Perhaps buy less hardware.
Q Steve, what is biggest threat to 1st Data/Remitco?
Steve, 1st Data/Remitco – we joked about this all night last night. The decline in checks. We’re the largest processor of mail in consumer payments in the country. Will be billions for time to come, but it is declining.
Q – Ron, biggest threat to lockbox processors, like JPMC?
Ron, JPMC – We have a lot of market share that everyone is trying to pick at. Merger took care of some of that. We need to compete against non-bank providers. They don’t have to have a clearing system. Can use remote capture. Smaller banks can compete in mid-small biz. Positive – mostly large volume. 16% market share (BofA has more) but customers are still doing a lot of their own processing. But they won’t be forever, and that’s good for us.
Q – non bank competitors, intermediaries
John, Citizens Bank – look at what they don’t do. Incorporate into bank-centric offering. Decline in checks, competition of intermediaries Break down silos between paper and electronic. One track with integrated solutions for all types of payments.
Q – Biggest threat to operations manager,
Joe, US Bank – where do I start. Volumes and capabilities. Customer wants capability – if you can’t provide you won’t get business.
Q – impact of BOC
Steve, 1st Data/Remitco – not that big a deal
Ron, JPMC, what is BOC? [laughter all around] Oh, back office conversion. No impact.
John, Citizens Bank – not much impact.
Joe, US Bank – none.
Q – 18 months from now what will be the big news in payments?
Steve, 1st Data/Remitco – Image Capture – remote payment capture (tie in payment that someone gets in branch to AR transmission. Invaluable for billers and lockbox).
Ron, JPMC – online user experience, next generation remote capture, impact of paperless on workflow (vendor models currently setup for batches)
John, Citizens Bank – image exchange, new products in property management, broken down silos
Joe – continued consolidation of industry. Worried about adequate resources. Labor. Where are the talented young people that want to enter changing industry.