Erin McCune and I attended the Association for Finance Professionals conference in San Francisco on Monday and Tuesday. With 4,000 plus “practitioners” and vendors there, and a robust Payments Track, there was a lot of food for thought. A standout session was “Same Day ACH” with Rich Oliver of the Fed (and the champion of the Fed’s proposed service), Peter Davey of Cap One, and Stephen Ledford of McKinsey.

The same day ACH proposal has most typically been talked about as a service which will apply to check conversion transactions – to enable electronics to clear as fast as paper would (don’t you love that). But I had not realized before that the Fed is also talking about this applying to WEB transactions. This would mean all those alternative-payment schemes for eCommerce could clear faster than card transactions! This won’t be immediately realizable, as long as the service is strictly opt-in, as it is currently being proposed. That would mean that the timing of a merchant settlement would depend on where the consumer banks, and if that bank had opted in. But if it moves into the main stream, as a service that all banks must (by rule or practicality) adopt, it could create a significant advantage for ACH funded purchasing products.

Later that day, we interviewed a senior executive at a top three bank. He said he worried about banks “creating value without return.” I can see why he might be worried.

Related articles:

1. ARC Conversion of Some Corporate Checks
2. The End of Cards as We Knew Them?
3. Why Debit Cards Aren’t a Product

My colleague Carol Coye Benson and I are attending the Association of Financial Professionals Annual Conference in San Francisco next week. If you are planning to attend and interested in getting together to talk B2B payments (or any other payment topic) let us know!

Related articles:

1. Are You Attending AFP in San Francisco Oct 4-7?
2. Are you Attending ATM, Debit and Prepaid Forum 2009 Next Week?
3. Key Take-aways from Glenbrook’s B2B Payments Workshop in NYC Last Week

My colleague Carol Coye Benson and I are attending the Association of Financial Professionals Annual Conference in San Francisco October 4-7. If you are planning to attend and interested in getting together to talk B2B payments (or any other payment topic) let us know!

If you aren’t familiar with the Association of Financial Professionals, they are a global resource and advocate for the finance profession, providing certification, products, education and training for treasury and corporate finance. This year’s conference includes sessions devoted to how corporate finance professionals can:

• Finance the Enterprise
• Invest Cash Effectively
• Better Manage Risks
• Improve Processes

Visit the conference website for more details and registration.

Related articles:

1. Are you Attending AFP in San Francisco Next Week?
2. NACHA Payments 2008 – Forte Blog Index
3. Are you Attending ATM, Debit and Prepaid Forum 2009 Next Week?

It’s springtime, and annual payments statistics are starting to bloom. A good time, perhaps, to consider the state of business-to-business (B2B) payments. NACHA recently released figures showing that ACH CTX transactions grew by 15% in the fourth quarter, compared to the previous year. Earlier, Visa disclosed that their fourth quarter commercial volume was 13% ahead of the prior year. Nice growth numbers, particularly in these challenging times.

But for those of us with long histories in B2B payments, it’s still not enough. We all know that the bulk of B2B transactions are still made by check. An AFP survey at year-end 2007 showed that 74% of business payments were still checks. The NACHA and Visa statistics tell us things are changing – but why isn’t the transition from paper to electronic business payments happening more quickly? After all, almost all corporate surveys show that corporations – on both the paying and receiving side – see the benefits of electronic payments and intend to implement them. Here’s our view of some of the myths and realities about why movement is slow.

THE MYTHS

“It’s too complicated.” A lot is made of the fact that the B2B payments environment is complex. We don’t disagree. There are complex, interwoven processes, systems, and business relationships. There is messy data. But although this accurately describes the business payment environment, it does not explain why checks persist. In many instances, electronic payments can replace checks without greatly increasing complexity or disturbing current practices. These current practices, by the way, often aren’t all that great. The problem is that many people think that migrating to electronic payments will somehow “solve” the whole complex environment. It won’t.

“The hub controls the spoke.” Many discussions about B2B payments revolve around the myth of the all-powerful customer dictating how it will pay its small suppliers (and occasionally, the reverse: a powerful supplier dictating how customers will make payments). Although undeniably true in some cases, it does not describe most situations. Businesses often have tens of thousands (or hundreds of thousands!) of counterparties. It’s a many-to-many world. Businesses trying to standardize their A/R or A/P processes struggle to meet the demands of a single customer or supplier who demands “pay this way”. Expecting that uber-efficient “hubs will lead all businesses to electronic payments is simply wishful thinking. They won’t make it happen; and they aren’t why it’s not happening.

“Banks are dragging their feet.” This argument holds that banks are making so much money from check payments that they are actively resisting conversion to electronics. Common sense and anecdote both refute this. Bank profits from pure check float are eroding in any event with the advent of image clearing. The real money is in winning and maintaining business deposit accounts – which remains the case when payments are made electronically. Smart banks are figuring out that the lockbox opportunity – capturing and transmitting remittance data – is still there with most electronic payments.

THE REAL PROBLEMS

“It’s all about the money.” The float argument, held against banks, applies more accurately to businesses. But people are again missing the point when they insist that this is keeping the practice of checks in place. The real driver, for payers and receivers alike, is the time value of money. Payers want to control the timing of their cash outflow; receivers want to accelerate collection. Electronic payments do not diminish control over timing; they just alter the mechanics somewhat. Card payments for B2B transactions are gaining vogue in part because some suppliers see this as a tool for more rapid and more certain collection of payments due. Whether this is true depends on the model (there are both buyer-initiated and supplier-initiated card payments) and how it used by the initiating party. The lesson for bankers? Talk about how electronic payments tools can be used in conjunction with terms negotiations and payment policies to advance the cash flow interests of your customers.

“Where’s the phone book?” Checks are awfully easy for the payer – all they need is an address. All other solutions require getting payments details – account numbers, card numbers, etc. from your supplier. Once received, this information needs to be safely stored, maintained, and updated. Imagine: all over America, the same data about an individual supplier’s payment preference is being stored in the vendor master files of their thousands of customers. Why can’t a customer simply look up the payments instruction for a vendor? Surely in this age of Internet databases and data security the industry can find a solution. NACHA is working on it, and the card networks have it – sort of. But don’t we need some kind of cross-payment system solution? Why can’t you look up ACME Widget Co. and find out what kind of electronic payments it supports, and how to make them?

“What’s this payment for?” The remittance data problem, sadly, is all too real. Here are the components of the problem. (1) Getting the data from the buyer (remittance data includes listing of the invoices paid, the amount paid for each invoice, explanations for short pays, and justification for discounts and promotional deductions). (2) Associating this data with an inbound payment. (3) Getting this data into digital, system-readable form. (4) Matching the data receivables data and posting the payment against open balances for the customers in A/R. Checks solve the first two problems by simply putting the document in the same envelope as the check. ACH CTX solves the first three problems, but only 4% of ACH B2B transactions use the CTX data-carrying format. How is remittance data handled for those other ACH (and many buyer-initiated card payments)? Usually, by some form of email or fax. The lesson for bankers: there is a problem here to be solved – and your customers might pay you for it!

The fourth component, A/R integration, is a problem of increasing focus. Glenbrook Partner Erin McCune, who works extensively with corporations on payments integration issues, says “it’s hard to over-emphasize the pain that this problem is causing A/R departments across the country. Initiatives such as the EPN STP 820 will help, but the active cooperation of software vendors is critical. I’m pleased to note that many are making attempts to modify their solutions to ensure that electronic payments – both ACH and cards – can be more easily posted by corporations of all sizes.” And toward the end of next year, when robust remittances come to wires, there will be an opportunity to address those incoming payments as well.

Summary

So now that spring is here, what can bankers – and the industry as a whole – do to encourage the growth of electronic payments? Our advice is to concentrate on helping customers solve the real problems, and not to be overwhelmed by the myths. A case, perhaps, of making sure that we don’t miss the forest for the flowers. Let us know what you think!

Related articles:

1. Payments Milestone: CHIPS is 40 Today
2. Key Take-aways from Glenbrook’s B2B Payments Workshop in NYC Last Week
3. From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

A survey of corporate finance professionals attending the annual Association for Financial Professionals (AFP) conference in LA this week reveals that they perceive the credit market is stabilizing due to recent government actions. The U.S.
Treasury plan to purchase an equity stake in key financial institutions
and guarantee money market funds, along with the Federal Reserve’s plan
to purchase Commercial Paper, has improved the outlook for credit
availability.

"While the economy appears to be shaken, credit looks to be
stabilizing," said Jim Kaitz, President and CEO of AFP. "More than
three weeks ago, we said that the most pressing issue for business is
access to credit. Actions by policymakers have in recent days brought
some measure of confidence back to the markets."

Survey respondents indicate overwhelmingly (97%) they think
the U.S. economy is in recession. One-third (34%) believe that the
recent turmoil in the credit markets precipitated the recession, while
nearly two-thirds (63%) believe that the U.S. was already in recession
prior to September’s events.

Despite belief that access to credit has stabilized in the
last two weeks (75%), many companies are still experiencing
difficulties. More than one quarter (25%) report that their access to
new or additional short-term credit is very limited. A nearly similar
percentage of survey respondents (22%) report that the tight credit
markets over the past month have stalled growth opportunities.

Overall, financial professionals are more positive about the outlook for short-term credit.

• 69% indicate that the Treasury’s purchase of preferred shares in
  U.S. financial institutions will improve corporate access to short-term
  credit.
• 81% cite the Federal Reserve’s plan to purchase Commercial Paper and guarantee money market funds as improving access.

The recent government actions have led some organizations to be more
comfortable in investing outside of ultra-safe Treasury securities.
Thirty-one percent of survey respondents indicate that they are more
comfortable with re-allocating at least some of their short-term
investment portfolio into other high-quality investment vehicles that
offer higher yields.

Source: AFP Online

Related articles:

1. Credit Crisis Impact on Corporates (AFP Research)
2. CFOs on Tightening Credit and Deteriorating Commercial Banking Services
3. Signs of Hope: Frozen Credit Markets Coming Back to Life (The Economist)

The Association of Financial Professionals just published research on short-term credit access for corporates. The survey was originally
conducted in early September and was supplemented by a shorter
survey conducted in last week to reflect evolving market
conditions.

Highlights:

The recent turmoil in the financial markets has had a direct impact on
the ability of organizations to access short-term credit. As a result,
companies are hoarding cash and taking defensive actions, including
reducing capital spending, freezing hiring, considering layoffs, and
delaying payments to their suppliers.

"The most pressing issue for businesses is access to credit," said Jim Kaitz, President and CEO of AFP. "This survey is evidence that inaction by either Congress or regulators will have severe consequences on Main Street."

A supplemental survey conducted in the past week documents a dramatic, sudden tightening of credit markets with immediate impact on U.S. businesses. Forty percent of finance executives report that their organizations have less access to short-term credit than they did one month ago, with 16 percent reporting significantly less or no access to short-term credit. As a result, 62 percent of finance executives report that their organizations have already taken defensive actions. These organizations have:

• Moved all or most of short-term investments to bank deposits and U.S. Treasuries (41 percent)
• Reduced capital spending (37 percent)
• Shortened the duration of their investment portfolios (29 percent)
• Frozen or reduced hiring (26 percent)
• Drawn on existing credit facilities to build cash (26 percent)
• Considered staff reductions or layoffs (22 percent)

Finance executives report that these defensive actions will become more widespread if credit access does not improve by year end. Organizations that continue to have reduced access to short-term credit at year end are likely to:

• Reduce capital spending (61 percent)
• Freeze or reduce hiring (42 percent)
• Draw on existing credit facilities to build cash (33 percent)
• Tighten credit standards for trading partners (27 percent)
• Consider staff reductions or layoffs (26 percent)
• Reduce current or planned inventory levels (23 percent)
• Delay payments to vendors (18 percent)

As recently as early September, finance executives reported little change in their access to short-term credit over the past two years, with nearly half of organizations reporting no impact on their access to credit, and approximately equivalent percentages of companies reporting an easing (24 percent) or tightening (28 percent) of short-term credit. At that time, only two percent of companies reported that access to credit had caused any form of business contraction.

Finance executives report that secured lines of credit (60 percent), unsecured lines of credit (59 percent), commercial paper (26 percent), and asset securitization (25 percent) are the most critical forms of short-term financing to their organization. Even before the events of September, these same financing instruments were the ones that were most adversely impacted by the credit market disruptions. Finance executives reported a moderate or sharp decrease in access to unsecured lines of credit (24 percent), secured lines of credit (17 percent), commercial paper (12 percent) and asset securitization (9 percent).

Download the 2008 AFP Short-Term Credit Access Survey here.

Related articles:

1. AFP: Credit Markets Stabilizing
2. CFOs on Tightening Credit and Deteriorating Commercial Banking Services
3. Best of the Worst of 2008: Advice from CFO.com on How Corporate Finance Should to Respond to the Credit Crisis

On Friday, NACHA announced a six month extension of the deadline for International ACH Transactions (IAT) from March 2009 to September 2009. Many smaller banks were caught by surprise by the changes necessary to support IAT. Although software vendors are prepared to make the necessary changes available in upcoming releases and many banks outsource their ACH processing to third party vendors that were on track for March 2009, the new transaction code requires process changes not only at banks but among their customers to ensure that regulations to prevent terriorist financing and money laundering are followed.

Excerpts from the IAT Q&A developed for Corporates by Arlene Chapman at AFP:

What is the definition of an International ACH Transaction (IAT)?

An IAT is an ACH debit or credit entry that is part of a payment transaction originating from or transmitted to an office of a financial agency located outside the territorial jurisdiction of the U.S.  The distinguishing feature of an IAT is the geographical location of the financial agency involved in the payment transaction.  It does not depend on the location of the originator or receiver of the transaction.

Why is the term “financial agency” used?  Why not simply “financial institution”?

The term “financial agency” refers to both financial institutions and money transmitting businesses.  An office of a financial agency is involved in an IAT if it: 1) holds an account that is credited or debited as part of a payment transaction; or 2) receives funds directly from or makes payment directly to a person as part of a payment transaction; or 3) serves as an intermediary in the settlement of any part of the payment transaction.

What information must I provide when my organization originates IAT transactions?

The information that must be included in an IAT is the same as the information you provide in an international wire transfer.  There are seven mandatory addenda records that are part of an IAT.  They must contain:
•    Name and physical address of the originator
•    Name and physical address of the receiver (beneficiary)
•    Account number of the receiver
•    Identity of the receiver’s bank
•    Correspondent bank’s name, Bank ID number and Bank Branch Country Code
•    Reason for the payment

The field requirements are consistent with SWIFT standards.

Can I include remittance information with an IAT transaction?

Yes, two optional addenda records accommodate the transmission of remittance
information.  A maximum of 160 characters (80 characters per addenda record) can be included. 

More from the AFP Q&A available here

American Banker (subscription required)
NACHA IAT Resources

Related articles:

1. Countdown to IAT: Are You Ready?
2. The Return of The XML All-Star Team [NACHA Payments]
3. Remittance Standards for Wire Payments [NACHA Payments]

A couple articles of interest at GTNews this week:

Payments in Need of Standardisation
Jonathan Williams, Experian Payments
Corporate treasurers are facing pressures to consolidate and standardise their processes – how can they balance these requirements?

SEPA Security – Lessons Worth Learning from the Past
Steve Brunswick, Thales e-Security
SEPA security should not be regarded as a daunting task but instead corporates should learn from the experience of previous large security projects.

The Latest Shift in Payments
Rohan Padhi, Cognizant Technology Solutions
This article considers the impact of SEPA and corporate access to SWIFT and how banks are tailoring their offerings to meet client needs.

Plus, AFP's Global Corporate Treasurers Forum just wrapped and there is a recap of the major themes. Not surprisingly, liquidity was a a hot topic. Vendors take a look to see what CFOs and Treasurers are worried about (in addition to their careers, that is).

Commentary – How to Optimise Treasury Strategy and Your Career
At the AFP's recent Global Corporate Treasurers Forum in Chicago, topics such as treasury strategy, organisational structure and career progression took centre stage, against the backdrop of the liquidity crisis. .

There's plenty more at GTNews.com

Related articles:

1. GTNews Explores How the Corporate-Bank Relationship Is Evolving
2. GTNews: Corporate Payments
3. Curious about SWIFT? GTNews Call for Questions

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

Arlene S. Chapman CTP
Senior Consultant, Technical Services, Association for Financial Professionals
Daniel W. Ellecamp CCM
Financial Consultant, California State Automobile Association
Rue Jenkins
Assistant Treasurer, Costco Wholesale Corporation
Claudia Swendseid
Senior Vice President, Federal Reserve Bank of Minneapolis

Synopsis from Conference Program

My Observations & Comments

This was another very good session – with seasoned corporates sharing their views alongside industry experts from AFP and the Fed. I won’t attempt to capture all of the statistics as they are readily available from the Federal Reserve, previous presentations,  and AFP. Over all, B2B transactions make up 12% of non-cash transactions (10.9 billion) and 84% of the value ($156 Trillion). From 2000 to 2006 the number of check B2B payments declined somewhat, but not as quickly as consumer checks have declined. Cards are the fastest growing B2B electronic payments method, increasing at over 25% /year. ACH is also growing steadily, although not all B2B ACH transactions include addenda (remittance data):

Wires remain relatively flat in volume, although with the addition of remittance data in 2010 there may be a surge in usage.

Costco

Costco is gradually shifting its payments from check to ACH. Their challenge is that not all vendors have the ability to receive remittance data electronically and post it to their systems automatically. Costco makes electronic payments either by ACH or by Purchase Card. Pcards are very easy for Costco but challenging for the supplier as they have to pay interchange.

Jenkins from Costco likened corporate payment processing to a production environment in factory, just like building  a car on an assembly line. There are many opportunities to decrease waste and drive up efficiency. Electronic payments are very efficient, have less fraud, do not get lost (checks get lost), and the remittance does not get lost (like in a paper environment). In comparison, dealing with paper is cumbersome.

Costco runs checks daily today, but has considered moving to a model where ACH payments are run daily and check runs are limited to 2-3 days per week. Jenkins suggests that payment method be incorporated into the procurement purchasing and contracting discussion as each vendor contract is negotiated (or renegotiated).

At Costco Treasury advocates for electronic payment (either sending or receiving) and advises other departments (AR, AP, etc.) as they weigh alternatives.

Over time, as the Federal Reserve closes processing sites and image clearing continues to increase, the float benefit of checks will diminish, supporting the transition to electronic payment methods.

Cal State AAA

Over the last 5-6 years AAA has made an effort to transition toward more electronic payments. They tried a one card solution, but it didn’t work as well for the purchasing department. Now they use both a T&E card and a purchase card. They also send ACH transactions without addenda in many cases, but follow up wiht remittance information however the supplier wants to receive it (email, fax, etc.). They also use a ghost card via Peoplesoft.

Ellecamp from AAA observed that it is much easier to send electronic payments than receive them. They have put little attention toward AR so far.

AAA tries to be as flexible as possible in sending remittance data to its suppliers “we give them every opportunity so they cannot say no.” Ellecamp explained that by implementing ACH payment with key suppliers (glass replacement, car rental, body shops) AAA saves $100,000 a month and significantly streamlined its payables process.

When asked how he would feel if suppliers mandated sending electronic payments to the AAA AP department, Ellecamp responded “I’d love that!”

Ellecamp observes that electronic payments are “not sexy, not exciting” and that he often has to cajole other departments to change their processes. But the savings are hard dollars that continue indefinitely (for years to come) and that’s appealing.  He also advocates getting an advocate to support the cause, e.g the CFO. [I advocate marshalling the support of senior leadership, too. See more here.]

Both Costco and AAA agreed that better products from banks, particularly those that support small and mid-sized businesses will help ease the transition to electronic B2B payments.

>> Return to index of my posts from NACHA Payments 2008

Related articles:

1. The Federal Reserve’s view on Paper Payment vs. Electronic Payments
2. NACHA Payments 2008 – Forte Blog Index
3. The Check is in the Email? Electronic Payments Orders Could Be An Opportunity for Banks

I took a slight detour en route home from Las Vegas (via Death Valley and Yosemite – spectacular!) and just finished writing up my observations.

This year is the largest NACHA Payments conference to date (they get bigger and bigger each year) with nearly three thousand attendees. There were sessions devoted to ACH, check electronification, card solutions, global payments, corporate payment solutions and the payments industry over all. Over the course of the conference I attended eight sessions and had one-on-one conversations with seven vendors. I also participated in a press conference with the NACHA Leadership.

General Sessions & Overall Observations

Summary & NACHA Leadership Interview

Keynote/Peter Raskind, National City (general session)

Break Out Sessions

International Payments
ACI Worldwide & BofA

Global Remote Deposit Capture
Goldleaf Financial and Global Concepts/McKinsey

Corporate Mobile Banking
Celent & Wells Fargo

XML All Stars
BofA, JPMorgan Chase, GE Corporate Treasury, Upper Midwest ACH Association, ABN AMRO Bank

B2B Outlook
Federal Reserve, AFP, Cal State AAA, Costco

Remittance for Wires
Federal Reserve, CHIPS, SWIFT

NACHA's B2B Strategy
NACHA, Celent

How To Turn Your Online Bill Pay Expense into a Revenue Stream
eCom Advisors

Vendors

Bob Lund/eGistics

Elspeth Bloodgood/ChoicePay

Joe Salesky/ClairMail

Rob Peyton/OB10

Kathy Strasser/Wausau

Danne Buchanan/NetDeposit

David Peterson/Goldleaf

Related articles:

1. NACHA Payments 2008
2. Remittance Standards for Wire Payments [NACHA Payments]
3. The Return of The XML All-Star Team [NACHA Payments]