Midsize Enterprises Lead in Adoption of Payment Outsourcing

Transcription

1 Research Brief Midsize Enterprises Lead in Adoption of Payment Outsourcing Abstract: More than one-third of midsize enterprises plan to use payment outsourcing by New areas of interest include automated clearinghouse and business-to-business payment outsourcing. By Susan Cournoyer Recommendations Evaluate business process outsourcing for payment processes to achieve competitive parity with other midsize enterprises as well as within trading networks. Consider BPO as an alternative to implementing in-house electronic payment solutions, particularly to maintain focus on strategic IT initiatives, improve customer service and reduce transaction costs. Discuss payment outsourcing with your company's established provider of commercial banking services. Publication Date:6 January 2003

2 2 Midsize Enterprises Lead in Adoption of Payment Outsourcing Asking Questions about Payment Outsourcing At the Gartner Midsize Enterprise Summit in Chicago in September 2002, IT decision makers posed several questions about payment outsourcing, including how they might use it in their businesses and to what extent other midsize enterprises are already utilizing it. The short answer is that midsize enterprises already outpace small businesses and large enterprises in their adoption of payment outsourcing. It tends to be widely used for credit and debit card payment processing. Also, usage of outsourcing for business-to-business (B2B) payments is increasing. Midsize Enterprises Are Using Payment Outsourcing? A larger percentage of midsize enterprises use payment outsourcing services, compared with small businesses and large enterprises (see Figure 1). More than 20 percent of midsize enterprises are already using payment outsourcing, compared with about 10 percent of large enterprises. By 2004, one-third of midsize enterprises plan to be using payment outsourcing. In general, midsize enterprises choose business process outsourcing, such as payments outsourcing, for business reasons, indicating that it enables them to: Focus on their core business Improve customer service levels Cut transaction costs Through 2004 to 2006, the transition of B2B transactions to the Internet will provide a longer-term driver for electronic payments and payment outsourcing. As large enterprises increasingly focus on networked supply chains, this will also place pressure on midsize businesses to conduct payment processes electronically. Good candidates for payments outsourcing right now include companies with recurrent consumer payments, such as insurers, utilities and communications companies. Midsize banks can use payments outsourcing forcreditandlendingoperationsaswellasforcheckimagingand archiving. Finally, companies in industries characterized by major supply chain investments including retail, distribution and logistics are likely to find business partners transitioning to electronic payments within the next year or two. For companies in these industries, now is the time to start investigating in payment outsourcing.

3 3 Figure 1 Payment Outsourcing Usage by Enterprise Size More Than 1,000 Employees 101-1,000 Employees Employees Percent Currently Outsource Plan to Outsource in 12 or More Months Plan to Outsource Within 12 Months Do Not Currently Outsource Source: Gartner Dataquest (January 2003) How Does Payment Outsourcing Tie Into Business Needs? Attendees at the Midsize Enterprise Summit provided several examples of how they are using payment outsourcing. For example, a midsize insurance carrier mentioned using the automated clearinghouse (ACH) network for insurance customers to pay its monthly premiums, lowering the cost to the insurer while increasing customer satisfaction. The insurer utilizes an outsourcing provider for this service. By contrast, many midsize enterprises rely on traditional payment processes, such as paper checks for B2B payments and credit cards for business-to-consumer (B2C) transactions. Historically, U. S. businesses have heavily relied on checks. Recent research by the Federal Reserve has shown that check usage peaked in the mid-1990s. By 2002, however, the Federal Reserve estimated that check usage was declining by 2 percent each year, while electronic payment usage steadily increased. The shift in payment strategies toward electronic payments has created an opening for more outsourcing of payment processes.

4 4 Midsize Enterprises Lead in Adoption of Payment Outsourcing Gartner Dataquest Perspective Midsize enterprises lacking internal resources to expand their payment capabilities can gain access to more options through business process outsourcing (BPO). Representative types of payment outsourcing, and the business process challenges they are used for, include: Credit and debit card processing Many merchants are already using payment outsourcing services to handle credit and debit card processing. These outsourcing arrangements are often facilitated through the merchant's primary commercial banking relationship. Electronic data interchange (EDI) EDI services tend to be most commonly used in B2B supply chains that reflect long-term business relationships. Electronic transactions via the ACH network The ACH can be tapped as a solution for recurrent, long-term payment arrangements. The insurance example referenced previously provides one application example for consumer-to-business payments. Emerging payments Emerging payments often involve new technology at the front end or point of sale that rests on top of established payment processing networks, such as the credit card or ACH payment networks. Examples of emerging technologies include electronic bill payment and presentment and check electronification. Outsourcing gives midsize enterprises access to these emerging technologies without requiring that they ramp up their skill sets and investment. Responses by midsize enterprises to a recent Gartner survey indicate that 30 percent plan to use BPO for payments by Adoption of payment outsourcing is likely to increase because of cost pressures, consumer demand and the accelerating pace of e-payment adoption in B2B transactions. Gartner Dataquest makes the following recommendations to midsize enterprises: Target migration to electronic payments within two to three years. With the emergence of BPO offerings, midsize enterprises are no longer confronted with the challenges of internal deployment and capital costs. Supply and demand trends point to the coming transition to electronic payments in the B2B environment. Evaluate BPO for payment processes to achieve competitive parity with other midsize enterprises. The percentage of midsize enterprises using payment outsourcing is larger than the adoption rate of both small and large enterprises. Those that retain payments as an internal process need to identify payments as an area of competitive differentiation or reconsider the resources being devoted to payments.

5 Review commercial banking relationships as part of due diligence related to payment initiatives. Many payment-outsourcing providers utilize banks as trusted business partners. Midsize enterprises should also consult with their established commercial banking contacts as they begin to conduct due diligence for payment outsourcing providers. Key Issue Which IT services will be best-suited for midsize business IT requirements? 5

6 6 Midsize Enterprises Lead in Adoption of Payment Outsourcing This document has been published to the following Marketplace codes: ITSV-WW-DP-0446 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice