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TRANSCRIPT
25th Annual Idea Exchange
Mark K. Webster, CPA, CCMPartner
Treasury Alliance Group, LLCSpecialists in Payments and Treasury Consulting
Innovative Payment Techniques
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Agenda
• Payments in Transition• Key Trends• Closing Thoughts• Q&A
Payments in Transition
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Change is good!
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Unless you have to pay for it!
1960
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The battle for dominance
• Coin and currency were dominant until the middle of the 20th century
• Checks became predominant by the 1960s• Credit cards entered the picture in the ’50s • ACH joined the battle in the ’70s• Debit cards in the ’80s
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Changing Payment Patterns
Source: FRB
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The Tipping Point
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Retail Payment Mix
Sources: Unisys, Global Concepts, Talon
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U.S. Retail Payment Volume
0
20
40
60
80
100
120
1979 1995 2000 2010
(bill
ions
)
ElectronicConversionCheck
Sources: FRB, ABA, Global Concepts
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Forces behind change
• New Technology• Economics• Channel/Location• Market
demand/acceptance• Need for accurate and
timely remittance information
• Regulatory changes & demands
Key Trends
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Key Trends
• Check Conversion
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Payee’s Bank (ODFI)
Consumer’s Bank (RDFI)
ElectronicNetwork
Blanket Authorization
OK-all checks
Check presented at POS
MICR Information Captured
Authorization Signed by Consumer
Check and Receipt handed back to consumer
Point of Purchase (POP)
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Merchant Consumer’s Bank (RDFI)
ElectronicNetwork
Check presented at Lockbox or
dropbox
MICR Information Captured
Check ImagedConsumer receives
notice in bill
Check Destroyed
Payee’s Bank (ODFI)
Accounts Receivable Check (ARC)
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Back Office Conversion (BOC)
Check presented at POS
Merchant Consumer’s Bank (RDFI)
ElectronicNetwork
Checks collected in back office
MICR Information Captured
Check Imaged
Check Destroyed
Payee’s Bank (ODFI)
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Why ARC?
• To reduce deposit fees– Most Billers are saving $.01 - $.03 per transaction with ARC– NACHA quotes 35 – 50% reduction in return fees
• To reduce number of returns– NACHA quotes that this has been reported as high as 50% by
current ARC billers– 15 – 20% reduction is a conservative estimate
• Faster notification of returns– 3-4 days after settlement vs. 5-10 for checks
• To reduce operational costs– Reduced labor, equipment, supplies etc.– Reduced errors, overtime, and holdover
• Faster collection– 1 day settlement for all ACH items versus 0-2+ days for checks
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Conversion “Challenges”
• Not all checks can be converted!• Choice of payment method moved from payer to
payee• Potential legal issues• Impact on reconciliation/fraud control systems• Ability to get copies of the check
Yes, I KNOW it’s against the rules, but your check IS going to be converted.
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Key Trends
• Check Conversion• Check Truncation
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Check 21• Legalized substitute checks• Became effective October 2004 for ALL checks• DOES NOT require image processing• Does create foundational framework for image
Fron
t
Bac
k
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Intermediary
Paying BankBOFD
Traditional Paper Collection
Check Check Check
Intermediary
Paying BankBOFD
Sub Ck
Substitute Check Collection
ImageCheck
Payment Process
Image
or
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Truncation “Challenges”
• Procedure changes – Some of your checks will become substitute checks
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Truncation “Challenges”
• Procedure changes • Service disruptions
– ARP/Positive Pay may be problematic– Statement cycles may be extended– Customer service/problem resolution may take longer– Product changes/enhancements may be delayed
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Truncation “Challenges”
• Procedure changes • Service disruptions• Price changes
– Bank margin pressures may result in attempts to increase prices
– Physical check processing will become more expensive
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Truncation “Challenges”
• Procedure changes • Service disruptions• Price changes• Float impact
– Disbursement float will be reduced– Collection float may be reduced– End result will be pressure on available cash
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And let’s not forget check fraud!
Are you expecting this?
Or this?
More importantly, what will your local prosecutor or AG expect??
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Payee’s Bank (ODFI)
Consumer’s Bank (RDFI)
ElectronicNetwork
Check presented at POS/Agency
Check Image Captured Images consolidated
and sent to central bank
Remote Deposit Capture
Consumer’s Bank (RDFI)Consumer’s Bank (RDFI)
IMAGE
IRD
ACH
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Remote Deposit Capture
Potential Benefits • All items eligible• Minimal retraining• No customer notice needed• Reduce costs associated with courier services• Reduce work involved in deposit preparation• Reduce work in account reconciliation• Later deposit deadlines can expedite posting• Remote deposit capture coupled with image exchange
will eventually improve availability and cash flow
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Key Trends
• Check Conversion• Check Truncation• Debit vs. Credit Cards
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Card Usage is growing
Source: Nilson Report
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Debit is taking over
0
2
4
6
8
10
12
14
16
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Debit Cards Credit Cards
Purchases (billions)
Source: Nilson Report, FRB
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Signature vs. Pin Debit
Source: ATM & Debit News, Nilson
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But don’t forget Wal-Mart
• Signature based debit card interchange fees were reduced by one-third on August 1, 2003
• Beginning January 1, 2004 , merchants may choose which cards to honor
• By or before EOY 2005, banks will need to reissue debit-only cards to distinguish them from credit cards
• And the battle continues…
Even with interchange, cards may be the least cost alternative!
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Key Trends
• Check Conversion• Check Truncation• Debit vs. Credit Cards• P Cards
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P-Cards Today – The 3 Ps
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Procurement Cards
• Widely acknowledged as a “best practice” in purchasing/disbursements
• Gunn Partners study estimates an average savings of $47.75 per transaction based on average procurement cost of $77
• Both MC and Visa are using interchange rates to incent merchants to include detailed (Level III) purchase data with transactions
• Growth in online purchasing makes p-cards even more attractive
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Payroll Cards
• Particularly popular among retail and hospitality industries.
• Major employers using them include:– McDonald's– Lowe's – Sears – UPS – FedEx– Cingular Wireless – Blockbuster– Office Depot – Coca-Cola
Source: Wall St. Journal
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• More convenient• Easier to use• Saves time/faster• Can get money faster• Instant access to money• Don’t have to have checking account• Easily accessible
Payroll Cards vs. Direct Deposit
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Prepaid Cards
• Stored Value Cards• Gift Cards• Campus Cards• Insurance Cards• Incentive Cards• Flexible Spending
Accounts (FSA)• Other???
$0$500
$1,000$1,500$2,000$2,500$3,000$3,500$4,000
2003 2004 2005
Prepaid Cards(millions)
Source: American Banker, Mercator
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Key Trends
• Check Conversion• Check Truncation• Debit vs. Credit• P Cards• Payment Hubs
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Enterprise Payments Hub
Data Management
Shared Services Manager
Bank 1
Bank 2
Bank 3
Bank n
Treasury Workstation
Internet
A/P
A/R
POS
Payroll
Payments Customers Rules
Balancing &
Recon
Returns & Repair
Reporting &
Analytics
Security & Risk Mgmt
Payments HubLeast Cost
Routing Translation MessagingRelease Mgmt
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Why Payment Hubs
• Reduced cost• Improved flexibility• Faster response time• Open standards• Fewer exceptions/Improved STP• Improved compliance• Bank independent• Network agnostic
Closing Thoughts
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• Payments are more than moving money, they’re also moving and managing information.
• Electronic payments can make the movement of information easier, but may complicate the management of that information if not implemented carefully.
• There will always be new payment methods. Developing a long term implementation and migration strategy is not a one time decision. Rather it is a commitment to your future success and peace of mind.
• Keep your options open. Remember Mencken:“For every complex problem there is an answer that is clear, simple, and wrong.”
Closing Thoughts
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Payments – What are your goals?
• Maintain controls/minimize cost• Streamline payments process• Convert payments from paper to electronic• Minimize risk and fraud• Increase customer satisfaction
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Questions?
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Mark K. Webster, CCM, CPAPartner
Treasury Alliance Group, LLChttp://www.treasuryalliance.com
[email protected](216) 375-4155 (mobile)(216) 932-1678 (office)
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