developing a payments strategy

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Developing a Payments Strategy

Treasury Alliance Group LLC


Payments Matter

•  They are a big, complicated business –  Global payments revenue more than $1.7 trillion in 2014 and

forecast to exceed $2.3 trillion by 2020* –  FinTech is piling in

•  Also a big opportunity –  To reach new customers through mobile and other channels –  Achieve internal cost reductions through alternative channels and

processing efficiencies

•  A big risk –  Systems or counterparty failures –  Cybercrime and fraud

•  And the lifeblood of any business –  Without the ability to pay and receive money there can be no

business

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*Source: McKinsey


Session Outline

•  Context of the payments challenge •  Understanding the payments issues at your

organization •  Developing a strategy •  Summary

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CONTEXT OF THE CHALLENGE


•  Traditional view of P2P and OTC –  Payments are a single element towards the end of each process

•  Changing due to greater focus on working capital management, systems integration and increase in payment options –  Payments impact all elements of the value chain, demand cross-functional

teams

Receive Goods and Invoice

Send Payment

Reconcile and

Account

Send Purchase Order

Credit Application

Negotiate Payment Terms

Select Supplier and Goods

Source Suppliers

Analyze and Review

Broad Functional Impact

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Order to Cash

Ship Goods and Send Invoice

Receive Payment

Reconcile and

Account

Receive Purchase Order

Manage Credit

Negotiate Sales Terms Quote Price Source

Customers Analyze

and Review


Expansion of Payments Categories

•  Traditional payment strategies developed for a world of RTGS wires, batch settled ACH, paper checks and card-present payments

•  The new world includes: –  RTGS wires –  Same-day ACH –  Image processing of paper –  Multiple points of card acceptance –  Mobile wallets –  Peer to peer payments –  Cryptocurrency –  …and more

•  Payments are an integral part of the marketing proposition

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Internal Processing

•  Diversity of payment instruments challenges legacy processes –  Vendor file may not be able to accommodate required details for

new payment channel –  Customer file may not be able to capitalize on automated cash

application capabilities –  Legacy systems architecture restricts potential for single-use card

payments or use of virtual accounts –  Rigid business processes limit opportunity to leverage supply chain

finance

•  The cumulative impact of poor internal processing capabilities places limits on the businesses ability to seize new opportunities

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Expansion of Risks

•  Systems –  SaaS solutions present an array of issues from security to stability to customizations

•  Counterparty –  Counterparties include all banks and FinTech providers between the payor and the payee –  Not always transparent

•  Foreign exchange –  Inherent volatility –  Multiple channels

•  Cybercrime –  The cost of Cybercrime is debatable but huge –  Manifestations include malware, ransomware, phishing, smishing, vishing and pharming –  Personal information, intellectual property and money are all targets

•  Fraud –  Check fraud is still good business, fraudulent chargebacks are a growth industry

•  Reputation is an asset that is hard to protect –  Mitigants exist for other forms of risk

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PAYMENTS ISSUES


Defining the Current State - 1

Understand what you are doing now, there are three parts to the task 1.  Activity 2.  Stakeholders

–  Internal –  External

3.  Financial –  Costs –  Benefits

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Defining the Current State - 2

•  Volume and value –  The number of payments and receipts by type, currency and processing method –  The value of those payments and receipts

•  Banks, processors and counterparties –  The banks and processors currently acting as payments intermediaries –  Your customers and vendors

•  Cost of payments processing –  Explicit fees paid to banks and processors –  Internal costs associated with payment origination, cash application and error adjustments –  Fraud and other losses in the payments process –  Opportunity cost –  Damage to reputation due to issues with accuracy, reliability and timeliness of payments

•  Current state must include all entities within the enterprise –  Ensure that all bank relationships are captured, regardless of degree of centralization or

decentralization –  All functional entities such as human resources, manufacturing and corporate travel should

be included

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Assessing the Current State

•  Develop a matrix view of current state elements –  Value and volume by element, e.g. payment method, bank

counterparty, transmission channel

•  Stratify results as: –  Enterprise critical, where failure or compromise could jeopardize

ability to operate as going concern –  Material, where cost would be noted impact on financial results –  Other

•  The assessment results are a key input for the enterprise payments strategy

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DEVELOPING A STRATEGY


High Level Blueprint - 1

Three broad steps to follow 1.  Establish an accountability point for payments 2.  Balance internal requirements 3.  Develop a plan

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High Level Blueprint - 2

•  Create payments committee –  Appoint payments lead for enterprise, single point of accountability –  Form cross-functional team

•  Prioritize functional requirements –  Business need for multiple payment channels versus processing cost

versus financial risk –  Business need for local bank versus liquidity benefit of regional bank

•  Develop enterprise payments business requirements •  Transformation plan

–  RFPs for required services

•  Long term reporting and monitoring

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Payments Committee

•  Enterprise payments lead –  Senior level individual with deep understanding of the

organization and ability to communicate with C-level as required

•  Committee members/stakeholders –  Treasury –  Sales and marketing –  Accounting –  A/P and A/R –  Risk management –  IT –  Other as needed

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Functional Requirements

•  Listing of issues such as multiple channels for marketing reach, streamlined banking architecture for counterparty risk

•  Balance using information from current state assessment

•  Create a consolidated statement of business requirements

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Implementation Roadmap

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Payments Strategy

3) Timing

1) Skills

2) Resources 4) Project Management


SUMMARY


Strategic Readiness

•  How do you answer these questions –  What do payments really cost you, include internal and third

party costs –  Do your payment practices allow you to reach all corners of your

potential market, are you losing business due to a missing channel

–  Who makes payment decisions; you, internal stakeholders, your customers or your competitors

•  Strategic readiness is a perfect score •  Payments demand strategic readiness

–  Achieved through a current and coherent strategy –  There is no single strategy that will fit everyone

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Questions?

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Mark K. Webster, CCM, CPA, Partner Phone (216) 932-1678

[email protected]

Daniel L. Blumen, CTP, Partner Phone (630) 717-9728

[email protected]

Treasury Alliance Group LLC www.treasuryalliance.com

developing a payments strategy

Economy & Finance