Transaction News. The Future of Customer Payment Behavior. By Thomas L Frale Jr.

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1 Transaction News April, 2012 Transaction News News and Articles of Interest for the Transaction Processing Professional The Future of Customer Payment Behavior Inside this Issue The Future of Customer Payment Behavior Letter from the (New) Editor The Remittance Coalition 6 How to Negotiate the Best Lockbox Agreement Executive Spotlight: Tim Kickham, Executive Director Aperta Impact 15 In the coming year, the banking industry anticipates accelerated adoption of electronic payments by non-profit organizations, businesses and customers. This change in behavior may coincide with potential consolidation from the United States Postal Service, which could cause increased mail delivery delays for paper payments. As these anticipated changes come into effect, customers may start to look into alternative options for making payments to billers. This shift in behavior could result in more patrons adopting electronic payment methods or even providing an increase in walk-in payments to companies, if customers fear a potential delay in their mailed payment. This article will explore best practices for organizations looking to streamline and improve their electronic payment and cash flow processes in relation to potential shifts in customer payment behavior. Continued on page 3 Letter from the (New) Editor By Thomas L Frale Jr. As the President of Transaction Directory LLC, I am truly excited to take over the stewardship of the Transaction Directory family of services. The Transaction News e-magazine and the Transaction Directory website have been providing an active base of over 32,000 subscribers information and alerts in a format and a frequency that we believe is unmatched in the transaction processing and financial services industries. But now is not the time to rest on the accomplishments of the past but rather an opportunity to look ahead to the future. We cannot wait to tell our subscriber base about the new and exciting things we have in store over the coming weeks, months and even years. As we make these changes, I welcome the input and suggestions of our subscribers and constituents to make Transaction Directory products and services the best they can be. Feel free to contact me at tfrale@transactiondirectory.com with any comments you

2 Letter (continued from page 1) may have to help us serve you better. Lastly, we could not be planning for the future of this publication and we would not be doing it justice without acknowledging the hard work of the previous owner. Steve McNair had the strategic vision and insight a few years back to take the Transaction Directory website and it s associated publications from a small niche provider to one of the most recognized set of services in the transaction processing space. He has set a high bar as an owner and we hope we can match his success moving forward. We wish him continued success in all his future endeavors. About Transaction Directory LLC: Transaction Directory is the one-stop source for information about the transaction processing market. It is our goal to provide a comprehensive suite of resources for news, industry knowledge, business applications, technology, vendors, products and services. Transactions drive commerce and commerce drives the world. Thanks, Steve! Page 2

3 Transaction News Future (Continued from page 1) Review current electronic payment processes and channels. In anticipation of an increased demand for electronic payment options, organizations should develop a strategy to provide the best options for customers. Executives should look closely at their electronic channels and how user-friendly their current payment processes are and what better approaches may be taken to assist customers with the ease of transactions. By implementing more efficient and customer-friendly electronic payment channels, organizations can simplify payment processes allowing for timely access to funds and improving working capital management for the organization. Consider consolidation of vendors for electronic payments. While reviewing their payment processes, many organizations may consider consolidating a variety of online vendors into one provider who can assist with all electronic payment needs. Managing this process through one, consistent channel can streamline the process and improve functionality. Consolidation also has the potential to reduce costs and administrative resources required to manage several vendors. Improved functionality in electronic payments can greatly enhance the customer experience, boosting online brand image. Business leaders have the opportunity to leverage innovative new payment channels from financial services providers to customers. Continue to have a strategy in place for customers looking for alternatives to electronic payments. There are still many customers who prefer to pay their bills with a check. As I mentioned before, some of these customers may turn to electronic payment options, but there could also be an increase in walk-in payments to organizations in this customer segment throughout Or- ganizational leaders should review the process for walk-in payments for opportunities to improve or streamline the process. Questions executives should ask themselves include: Is your staff equipped to handle walk-ins? Is your staff knowledgeable to customer requests and questions? Is there a process in place for improving funds availability and speeding up the receivables process directly into the organization s account after a walk-in payment is received? Many organizations benefit from a remote deposit capture (RDC) system that can allow organizations to deposit checks directly into the company s account by scanning them through a desktop device connected to their computers. This process helps streamline the accounts receivable process and can improve the working capital available for an organization by directly depositing checks payments into an account through an RDC system. This system can save time over mailing checks to a banking center and reduce staff time in delivering check payments. An RDC system can greatly improve the efficiency of an organization s accounts receivable processes and improve funds availability for mid-sized to small businesses. If more customers do present walk-in payments, an RDC system will allow businesses to directly deposit payments into their account faster through a program they can manage and monitor directly from the office. Consult your banking partner to discuss which options may be available and best for your organization. While the move from paper to electronic payments has been marching along for more than a decade, throughout 2012 and the years to come, electronic payments will continue to grow in popularity due to convenience and the speed of payment delivery for customers and businesses. Executives need to review their processes for electronic payments to make sure they are providing their customers with easy-to- Page 3

4 Transaction News use interfaces to make payments online. Also, companies should be prepared to continuously review and evaluate payment options and their receivables process to improve their cash flow and funds availability as customers payments preferences and needs change. Greg Prince is vice president and senior treasury management product manager for Fifth Third Bank, a $117 billion financial services company headquartered in Cincinnati, Ohio. Prince oversees the strategic direction and development of integrated payments and liquidity solutions for non-profit and corporate organizations. Additional terms and conditions apply. Fifth Third Bank. Member FDIC. About Fifth Third Bancorp: Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $117 billion in assets and operates 15 affiliates with 1,315 full-service Banking Centers, including 105 Bank Mart locations open seven days a week inside select grocery stores and 2,407 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending and Investment Advisors. Following Vantiv Inc. s initial public offering, Fifth Third will have an interest of approximately 40% in Vantiv Holding, LLC, formerly Fifth Third Processing Solutions, LLC. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2011, had $282 billion in assets under care, of which it managed $24 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at Fifth Third s common stock is traded on the NASDAQ Global Select Market under the symbol FITB. Page 4

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6 The Remittance Coalition Debra Hjortland Businesses recognize the benefits of electronic payments lower costs, lower fraud risk, improved cash reporting and fewer errors to name a few. So why aren t U.S. businesses adopting electronic payments faster for business-tobusiness (B2B) payment transactions? According to the 2010 Federal Reserve Payment Study, between 2006 and 2009, checks written by consumers to businesses declined by ten percent annually while checks written by businesses to businesses declined at two percent annually. Looked at another way, consumers abandoned checks five times faster than businesses did. A number of recent studies have investigated the reasons for the slower adoption of B2B electronic payments. For example, a Paystream Advisors survey found that a lack of integration between electronic payments and A/P systems and the inability to exchange automated information (i.e., remittance information) were barriers to B2B electronic payment adoption. A study by U.S. Bank, the International Accounts Payable Professionals (IAPP), and the American Productivity and Quality Center (APQC) found that the inability of trading partners to send or Barrier to Adoption receive automated remittance with an electronic payment was a barrier to the adoption ofb2b electronic payments. The 2007 and 2010 AFP Electronic Payments Survey also asked members about barriers to electronic payment adoption and found similar results. Key barriers included the inability of trading partners to send and receive automated remittance information with an electronic payment and a lack of standard remittance formats. In June 2011, the Federal Reserve Bank of Minneapolis and the standards organization X9 hosted a meeting of standards organizations and others involved in payments (banks, corporate treasurers, payment processors, vendors, and others) to better understand the barriers and options for improving remittance data exchange and automated reconciliation of payments. Meeting attendees agreed that the major problem was more than a lack of remittance standards (if anything, there are too many remit- Percent of Companies Citing Barrier Suppliers not willing to adopt electronic payments 40% Shortage of IT resources 35% Lack of integration between electronic payment & A/P systems 33% Inability to exchange automated information with electronic payments 26% Loss of check float 26% SOURCE: 2011 Electronic Supplier Payments, Paystream Advisors Page 6

7 tance standards). For a number of reasons, reconciliation of electronic payments with remittance information is difficult. Remittance information received to identify the invoices, goods, or services being paid or the reasons for a cost adjustment may be insufficient. The large number of alternatives for remittance exchange results in the need to support too many remittance alternatives, many of which require significant manual intervention. Bottom line: accepting a check payment is simpler. Having agreed on the main problems, several meeting attendees decided to form the Remittance Coalition. The Coalition s objective is to increase the efficiency with which business-tobusiness (B2B) payments are made and reconciled by all types and sizes of businesses. The Coalition plans to accomplish this objective by promoting more unified standards and processes and common automated tools that support: (1) Using more electronic payments for B2B transactions, and (2) Originating and delivering electronic remittance information that can be associated easily with the payment and business transaction. Barrier to Adoption The Coalition has no dues and membership is open to any individual or organization interested in working to address remittance issues. Membership has grown since the June 2011 meeting, and there are currently about 60 members representing almost 40 different organizations. Members represent banks such as U.S. Bank, JP Morgan Chase, and University Bank; corporate treasury and accounting practitioners and industry associations including the Institute of Financial Operations (IFO), Credit Research Foundation, and AFP; standards organizations including X9, IFX, and GS1; and payment services providers including BancTec, NACHA, and The Clearing House. The Coalition is working on a number of initiatives to address and bring clarity to the problem. These include: Develop a glossary of remittance-related terminology to promote common understanding Develop a catalog of existing and planned remittance-related industry initiatives and an inventory of existing remittance standards & their uses Reach out to other key stakeholders, particularly small businesses, about remittance and electronic payment reconciliation, to include their views in the work of the Coalition and to educate them where needed Percent of Companies Citing Barrier Difficult to persuade suppliers to accept electronic payments 84% Trading partners can not send or receive automated remittance with electronic payment 72% Shortage of IT resources for implementation 65% Cost to implement electronic payment projects 62% Concern about payment fraud 44% Check systems work well 42% SOURCE: 2010 Electronic Payment Trends in Accounts Payable, U.S. Bank, IAPP, and APQC Page 7

8 Conduct a survey of business practitioners on remittance processing problems & their views on potential solutions to address those problems Collaborate on development of an ISO standalone extended remittance standard Investigate developing a directory/ repository to provide information needed for electronic payments and remittance processing Address problems that sometimes result when a check routing number is used for an electronic payment Some of these efforts are being worked through the X9 Corporate Payments Subcommittee, for example, developing a glossary of remittancerelated terminology and an inventory of remittance standards, and developing a recommendation for addressing the issue that sometimes occurs when check routing numbers are used for electronic payments. Led by IFX, the Coalition is supporting work to develop a new ISO message to exchange extended remittance information in XML. The Coalition stays current on progress and provides a forum for sharing information with Coalition members and providing feedback and views of the Coalition to IFX. This spring the Coalition will conduct a survey to gain clarity on the pain points associated with remittance information exchange and payment reconciliation and to assess corporate views about potential remittance solutions, from more education about existing standards and services to new solutions. The AFP, IFO, CRF have agreed to distribute the survey to their members. The Coalition is also working with the Association of Small Business Development Centers (ASBDC) to include the views of small businesses. Survey results will be available this fall. A number of outreach events have occurred since the formation of the Coalition. Last Octo-

9 ber, Claudia Swendseid, Senior VP at the Minneapolis Federal Reserve, spoke to the Credit Research Foundation on the topic Simplifying Electronic Payments & Remittance Processing The CRF is now very involved in the work of the Coalition. At the November AFP conference, a well-attended Sunday morning workshop about the Coalition and remittance issues was offered to conference participants. Attendees shared their frustrations and issues with remittance exchange and reconciliation and their views have been incorporated into the work of the Coalition. Presentations are planned for the annual conference of the ASBDC state directors this March to engage small businesses in the work of the Coalition. The full Coalition met during the November AFP Conference and is planning another meeting in late April during the NACHA Payments Conference. In addition, conference calls are held quarterly to discuss progress. Clearly, addressing the issues related to the exchange of remittance information is resonating with corporate practitioners and industry stakeholders. There is much work to do to address the many facets of such a complex problem, but the Coalition is well poised with the right set of participants to be successful. General information about the Coalition can be found on the Federal Reserve Bank of Minneapolis public website. Anyone interested in joining the Coalition can contact Debra Hjortland at the Federal Reserve Bank of Minneapolis (deb.hjortland@mpls.frb.org). This article appeared in the March 2012 edition of the AFP Exchange magazine, copyright 2012 Association for Financial Professionals,all rights reserved, republished with permission.

10 How to Negotiate the Best Lockbox Agreement By Greg Schratwieser Many executives would agree that incoming payments are literally the life blood of the business. Haphazard investigations into choosing a lockbox vendor can result in high prices, poor service and lengthy / unhappy contracts. As a former marketer of payment outsourcing services, I am very familiar with how a lockbox organization operates and I am also aware that the entire process can be very intimidating. This article is designed to help your company negotiate a lockbox agreement from a position of strength. By following these next 7 steps, your business can negotiate the best price and insure the best service. 1. Detail your Company s Requirements As in any evaluation process, you must first start by documenting your requirements and workflow. It is imperative that the lockbox vendor clearly understand your expectations, volumes, specifications, data to be captured or scanned, etc. If the vendor does not precisely understand your requirements, this could lead to higher than expected prices and unattainable levels of service. This first step of writing down your specifications will also act as the building block for your request for proposal (RFP). 2. Know your Lockbox Options Today there are a number of viable lockbox options from both banks and non-banks. The best advice here is to shop around. Furthermore, if the lockbox salespeople are aware that a number of viable competitors are involved in the selection process, they are more likely to offer additional services at a more competitive rate. If there is a great deal of data entry work on non-scannable documents (Wholesale and Whole-tail Lockbox), prices may vary a great deal. Scannable payments are less likely to vary amongst lockbox vendors. 3. RFP and Proposal Presentation In both the RFP and proposal presentation process, the keys to success are questions, questions, questions. There is an old saying that if you don t ask for it, you won t get it. This phrase holds very true for the lockbox business. I usually advise my clients to draft a RFP to get many of these questions answered because the written word is much more binding than the spoken promise. When drafting an RFP, it is imperative to keep it short and to the point. Many qualified lockbox vendors may not have the time nor the staff to respond to a lengthy RFP. The list of questions to ask are many, anywhere from 300 to 1,500 questions. In the RFP and proposal process, the following general areas should be addressed: experience, financial stability, workflow, equipment used, turnaround, error rates and of course price per item. Special emphasis should be placed on exception items which can be extremely expensive. 4. Site Visits Once you have selected your final 2 vendors, we strongly recommend that our clients visit Page 10

11 How to Negotiate the Best Lockbox Agreement the vendor operation sites. Remember, these organizations will be handling your money. When visiting the sites pay careful attention to points mentioned in the RFP/Presentation stage, such as: Technology Operations staff (persons with whom you will be interfacing every day for years to come) Programming staff Existing clients with similar volumes, workflows, etc. Customer documentation 5. Negotiating Price Price negotiation tends to be the most emotional part of the decision cycle for both buyer and seller. There are several important points to remember in this stage: High emotions tend to cloud good judgment. It is best to keep your emotions at bay during the negotiation process. Lockbox Marketers and/or Cash Management Personnel are judged, promoted and often paid by the level of profit that they can generate on a sale. Motivation is high to close the deal. You can use this emotion to your favor. Prices, especially on non-scannable items, are rarely etched in stone. All prices and services are usually negotiable. If you position your company from the beginning with an organized plan, you can secure the best price. The large type giveth and the small print taketh away. Exception Items and Return Items can be very expensive. Make sure that the vendor has noted how each are to be processed and at what cost. 6. The Final Agreement Once there is an agreement on the final prices, there are a few last important points to consider. The length of the contract is very impor- Page 11

12 How to Negotiate the Best Lockbox Agreement tant as related to your organizations long term goals. For a longer term contract, vendors will frequently offer lower prices with small annual inflationary caps. In order to protect your organization, you should attempt to put an out clause in the agreement. This usually a difficult but significant term to negotiate. 7. Consider Outside Advice You may wish to consider the counsel of a consultant. An outside and objective opinion can help you identify viable vendors, ask penetrating questions and negotiate the best price/service contract. The few dollars invested at the beginning of the evaluation cycle can also save you countless hours of investigation before the decision is made, reduce costs by tens or hundreds of thousands of dollars each year and many headaches after the contract is signed. About ICI Consulting Since 1994, ICI Consulting has assisted banks and credit unions assess, cost justify, evaluate and convert core processing, check imaging (exchange, remote capture and archive), mobile banking, lockbox, lending, document imaging, CRM, branch and online banking solutions. ICI has performed over (400) bank and credit union engagements for clients in (47) U.S. States and on (4) Continents. If you wish to schedule a free Exploratory Webcast or Meeting, please contact Greg Schratwieser at greg@ici-consulting.com or Please visit our website at Page 12

13 Tim Kickham Sales Director, Aperta Tim Kickham has been the Sales Director for payment processing solutions provider, Aperta, for 9 years. Prior to that, Tim worked for the payment processing divisions of both NCR and Unisys for 8 years each, after graduating from Washington University in St. Louis with a Bachelor s Degree in Business Administration and from St. Louis University with an MBA degree. Tim lives in St. Louis with his wife and 3 daughters. His passion is coaching his daughter s sports teams, which he has been doing for 14 years. He also is an usher at his church. Aperta is celebrating their 20 th anniversary and has over 400 installed accounts, with accounts ranging from handling hundreds of items per day to over 100,000 items per day. Their installed account base is spread fairly evenly across banks, savings banks and credit unions for check processing and across financial, commercial, public sector and non-profits for remittance processing and lockbox. How has the current economy affected your business? We have actually had strong years and have had a net addition of employees. We ve found the economy has had companies looking to reduce costs more than ever, which has led to remittance clients, that were processing work manually or outsourcing, to purchase solutions from us. Page 13

14 Executive Spotlight (continued) What do you believe have been the most significant changes in the payment processing industry in the last 5 years? I d like to go back further than that to October 2004, when the Check 21 Act took effect as it had such a monumental effect for both companies processing payments and for vendors. From the vendor standpoint, it really opened up the lower volume remittance processing market as now companies no longer need a $60,000 transport with an encoder; instead a $2,000 scanner without encoder suffices in many cases. What is the most significant change occurring in the payment transaction industry today? For the check capture market in the banking arena, the way the capture of payments is moving out to the consumer. After Check 21 in October 2004, we saw a huge spike in interest and orders for branch capture; then interest in merchant capture; and now interest in consumer capture. What business book do you recommend to your friends and peers? It s actually a sports book called, The Teammates: A Portrait of a Friendship, about 4 former Boston Red Sox players who met in the 1940s. It s inspiring how they all took care of each other through the years. Businessmen and business women can learn the proper way to treat people by reading this book. To learn more about Aperta, you can go to Tim can be reached at t.kickham@aperta.com or Transaction Directory Strategies for Success The Role of Mobile Devices in Transaction Processing Transaction Directory LLC is soliciting interest participants for our July Edition of Strategies for Success which will focus on the Role of Mobile Devices in Transaction Processing Strategies for Success is an electronic publication highlighting a single vendor s leadership position. Each publication features a single vendor article and advertisement providing strategic best practices guidance and thought leadership on specific topics influencing the transaction processing and payments markets. Strategies for Success reaches qualified decision-makers and buyers throughout the financial services industry, including operations managers and supervisors, cash management professional, corporate treasury executives and product managers. Strategies for Success allows you to craft and schedule your own message. You determine the content and depth of discussion of your article to educate prospective buyers on business opportunities, benefits, risks and the hot topics of the day. Strategies for Success has an audience of over 32,000 financial services executives. For more information and ad specifications, contact: Harold Smith, Sales Director at Transaction Directory LLC or Harold@transactiondirectory.com Page 14

15 Impact By Bob Manna and Matt Manna Contrary to established behavior and popular belief, the role of marketing is not to cite facts but rather to create impact. The difference is consequential. Citing facts is the practice of putting product information before customers or potential customers with the hope that such information will encourage a purchase. A trade show booth outfitted with a PowerPoint presentation and a stack of brochures is an example of this kind of thing. So too are the many fact citing practices represented under such names as Frequency & Reach, Cost Per Thousand (CPM), Search Engine Optimization, Accumulative Audience, Gross Impressions, Net Unduplicated Audience, Cost Per Inquiry (CPI) and others. In reality, these practices are the functional equivalent of a UPS rate sheet. They gauge the cost of message delivery. What they do not do is create impact. Let us be clear, in the mind of the customer a message (or trade show booth) composed of nothing but facts is an empty box. It doesn't matter how much it costs to ship an empty box & it doesn t matter how timely or articulately the delivery is made. An empty box is an empty box - period! Not only is it ineffective to communicate solely by delivering facts, it s arrogant. Fact based marketing assumes that the customer is willing to accept that what he or she already believes to be true can be false, or at least suspect. No customer willingly enters into an inquiry about a product this way. Yet, that is exactly the posture forced by fact based marketing. Even if it were possible to identify the rare individual capable of suspending existing beliefs, the evaluation time assumed by fact based marketing is a luxury that no longer exists. Today s marketplace is one of abundance deluged by product offerings, each of which diminishes the time and patience required to reevaluate current beliefs. The alternative to presenting facts is to create impact. It s hard to do, much harder than citing facts. It s often harder to accomplish than was the creation of the product being marketed. This is an important realization. If the amount of time, talent and money devoted to marketing a product does not at least equal the amount of time, talent and money that was devoted to its Page 15

16 creation, the product will have very little chance of success. That s tough news but it s the truth as supported by recent evidence indicating that more than 80% of all new product offerings fail. So how is it done? How does one create impact and in so doing persuade others to take the action you want them to take? Start by accepting that communicating articulately and communicating with impact are different talents. Communicating articulately is the ability to fluently and clearly present facts. Communicating with impact is the ability to influence others to take the action you want them to take. It s done by understanding how the mind turns information into meaning, and then using that understanding to present information with a sensitivity attuned to the current state of the mind(s) for whom it is intended. ficient to persuade. It doesn't matter how many facts are on your side. It doesn t matter how well you make a point or what it costs to do so. To move beyond articulate message delivery a communicator must come to understand and parlay with how the mind creates meaning from the messages it receives through the senses. Until that feat is mastered the articulate communicator will accomplish little more than that of a logistics clerk. Bob Manna and Matt Manna own the Dallas, Texas based business strategy & communication consulting firm named Manna Groups. Their addresses are bob@mannagroups.com & matt@mannagroups.com. Click Here To Sign Up For The Free Manna Successful marketers understand the difference between being articulate and being impactful. The questions they successfully address are, will the message being articulated evoke an emotional response within those for whom it is intended and if so, will it affect change? These questions are only incidentally concerned with facts and they are not at all concerned with message delivery. In truth, questions designed to measure impact exist specifically to measure what happens after a message has been delivered. It s true that being articulate and being impactful are both important. But only the latter is suf- Page 16

17 Transaction Directory Transaction Directory and Transaction News welcomes your article submissions and advertising copy. To learn more about submitting an article and/or to inquire about advertising opportunities contact: Thomas or tfrale@transactiondirectory.com. To receive your own personal complimentary copy of Transaction News, Weekly News Summary and Strategies for Success register at: For more information on the Remittance and Transaction Processing industry and market visit our website All rights are reserved. The contents of this newsletter cannot be reproduced, downloaded, disseminated, or transmitted, in any form or by any means, electronic, mechanical photocopying, or otherwise, without prior written permission of Transaction Directory, LLC. Transaction Directory LLC, assumes no responsibility and expressively disclaims al liability for consequences resulting from the use of the information contained herein. Reference herein to any specific commercial product, process, or service does not constitute or imply endorsement, recommendation, or favoring by Transaction Directory LLC.