Transcript Slide 1
© 2011 Financial Operations Networks LLC
The Power of e-Payments! Harness It Now!
David W. Hay Financial Operations Networks Tuesday, April 12, 2011
A Word About Checks
• Checks have their roots in the bill of exchange which has been in use for centuries • The earliest checks were issued in the U.K. in the early 1700s www.TheAPNetwork.com Page 2
Checks
• However, it is almost time to say “RIP” to checks – at least in the U.K. • The U.K. plans to phase out personal checks by Oct. 31, 2018 • The U.S. still has a long way to go; with a GDP 6.5 times larger than the U.K., the U.S. issues 28 times as many checks www.TheAPNetwork.com Page 3
www.TheAPNetwork.com U.S. estimate for 2009 is 17.9 billion Page 4
e-Payments
Key reasons for switching to e-payments: • Discount recovery — Ability to offer dynamic discounting • Cost — As check volume declines, unit processing costs rise • Fraud prevention — Millions of paper checks are “intercepted” each year www.TheAPNetwork.com Page 5
e-Payments
(Cont’d.)
• e-payments include: ― Credit and debit cards ― Portal systems such as PayPal and CheckFree ― ACH payments ― Wire payments ― Cross-border payments ―
And soon your phone, iPad, etc.
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P-Cards
Card providers are beginning to offer new and effective payment methods
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Card Types
• Procurement card ― Can be physical or ghost card • T&E cards ― Used for travel – usually physical • Fleet cards ― Used specifically for fleet management • One card ― Combines the functions of a procurement and a travel card www.TheAPNetwork.com Page 10
Basic Card Information from Merchants
• Level 1 ― Similar to personal card, • Date, supplier and total amount • Level 2 ― Includes level 1 data plus • Sales tax • Variable data field that includes an order number and employee name • Level 3 – line item detail ― Includes level 1 and 2 data plus • Product number • Quantity • Unit of measure • Product description • Price www.TheAPNetwork.com Page 11
Procurement Card
• Benefits ― Introduced in the early 1990s as a feature to reduce the amount of low-value invoices ― Many companies report that the average savings using a p-card is in excess of 50% per transaction • Card-issuing banks charge vendors a per transaction fee on card purchases averaging 2% –2.5% • Issues ― Cultural change is an important factor in successfully implementing a p-card program ― Most companies do not allow use of a p-card to purchase hazardous materials, capital equipment or for personal charges ― Suppliers need to have an agreement with a merchant service company www.TheAPNetwork.com Page 12
Ghost Card or AP Card
• A ghost card is a single card that can be used by multiple users • The number is given to a single supplier, or multiple suppliers with similar NAICS codes • The requestors do not know the account number, reducing the chance of fraud and misuse • No physical card exists • Monitoring and control resides with the department responsible for the account www.TheAPNetwork.com Page 13
P-Card as a Payment Method
The merchant charges the p-card for the transaction and then creates and mails an invoice marked as paid • Benefits — Payment cost reduced — Reduced chance of check fraud — Level 2 and 3 data not required • However!
— Care must be taken that the invoice is not paid twice — Invoice must contain CC or Credit Card in the “Terms” box on the invoice — May still require merchant service provider www.TheAPNetwork.com Page 14
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Buyer Initiated Payments (BIP)
New offering from credit card issuers completely reverses the normal card transaction flow • In a normal card transaction, the card holder presents his card to the supplier who initiates the payment process as soon as the card is “swiped” • With BIP, the buyer initiates the payment which is electronically remitted to the supplier • Supplier
does not
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Buyer Initiated Payments (BIP)
(Cont’d.)
• Benefits ― Supplier receives payment usually within 48 hours from invoice approval ― Buyer benefits from float ― Rebate potential for the buyer ― Lower cost than a check ― No card number is given to the supplier for the ultimate in security ― Buyer can use one provider for traditional p-card, e-payments and payables financing ― Normal invoice approval process still applies ― Benefit from online payment status and reporting portal ― Complete remittance data is passed to supplier ― Most providers help or completely conduct vendor enrollment ― Some providers offer selective acceptance so a supplier is not forced to accept this form of payment from all of their buyers www.TheAPNetwork.com Page 17
ACH Payment Documents
• CCD+ ― Cash Concentration and Disbursements plus Addenda Entry • Commonly used for business transactions • Has an 80-character addenda record • CTX ― Corporate Trade Exchange • Contains complete RA details • PPD ― Prearranged Payment or Deposit • Primary consumer-to-business transaction www.TheAPNetwork.com Page 18
ACH Volumes
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ACH Transactions
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EDI
• EDI systems can be used to send both remittance data to the supplier and the payment instructions to the bank • Can handle all types of payment transactions including check, ACH, SWIFT, wire, etc.
• Key document used is the ANSI 820 which can act as both the Remittance Advice and the Payment Instruction www.TheAPNetwork.com Page 21
Internet
• Banks ― Banks offer Internet services on their own platforms or through a service provider such as CheckFree • Service providers ― Such as Xign (now owned by JPMorgan Chase) ― Trade card ― EDI vans (for EDI payments) www.TheAPNetwork.com Page 22
International Payments
• Wire ― Similar to domestic wire • Higher priced, except if transmitted through CHIPS • ACH ― As of Sept. 2009, all International ACH transactions must be in the form of an IAT • SWIFT ― Service used by banks to remit payments cross-border • Letter of Credit ― Transaction guaranteed by banks, used for trade transactions • OFAC ― Office of Foreign Asset Control. All transactions must be checked against OFAC SDN list www.TheAPNetwork.com Page 23
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Is My Transaction an IAT?
Instruction + settlement Location of originator & receiver not relevant Payment transaction?
Yes Financial agency outside U.S.?
Yes U.S. ACH network?
Yes IAT No Message No Domestic ACH No Foreign/ Proprietary At any point Still subject to OFAC rules!
Not an IAT
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European Payments
• All payments going to—or crossing borders within— Europe must contain the International Bank Account Number (IBAN) • IBAN is up to 28 digits plus a 2-digit country code ― For example, a U.K. IBAN would look like this when printed: GB99 RBOS 1234 5612 3456 78 ― IBAN consists of country code and check digits, bank name sort, or routing code and account number. A currency code can be added after the IBAN i.e. (USD) www.TheAPNetwork.com Page 26
Global Gateway Bank Architecture
CUSTOMER GLOBAL GlobalGateway File GlobalGateway WEB 27 www.TheAPNetwork.com GlobalGateway Hub REGIONAL LOCAL LOCAL CLEARING EMEA Branch NA Hub ASPAC Hub LATAM Hub LOCAL CLEARING Branch Partner Bank A LOCAL CLEARING Partner Bank Z LOCAL CLEARING LOCAL CLEARING Branch Branch LOCAL CLEARING Page 27
U.S. E-Payment Providers
• The ACH is the backbone of all low value payments in the U.S. Go to www.nacha.org for details • Credit card providers • Non-bank entities such as the EDI vans and Web players offer solutions for the very smallest businesses to the largest • Banks – increasing the range of their services through their own systems, or by partnering or purchasing non-bank providers www.TheAPNetwork.com Page 28
Web Players (Sample List)
• Probably the best known is PayPal owned by eBay. There is an “App for That” • CheckFree: used by many billers in the B2C and smaller B2Bs • Fresh Books: Web-based solution targeted at small business, uses PayPal or credit card for payment • Vendoran: a trading partner network that facilitates the move from paper to electronic B2B payments.
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Banks
Most large banks offer services ranging from standard ACH payments to a complete order-to-pay service. These include: • JPMorgan Chase – purchased Xign and can offer full order-to-pay • Citi – partnered with Ariba for procure-to-pay • U.S. Bank through their PowerTrack division – full P2P • Bank of America www.TheAPNetwork.com Page 30
Bank, Sample Offering (B of A)
Comprehensive Payables
Directly Supports Our Clients’ Goals for Achieving Electronic Payment Transformation: Paymode-X ®
AP payments leveraging a proven ACH vendor network Increase processing efficiency and reduce payment processing costs Ability to include multiple payment types including card, ACH, checks and wires in a flexible single file, turn-key solution
Payments to Suppliers/ Vendors e-Payables
AP payments using the p-card network No implementation or per transaction fees Incentive cash payouts based on spend Increase float when compared to other payment types, allowing for improved cash flow
The Payment Network ®
Global high-value (Wires) and low-value (ACH) payments Bulk FX payment and draft processing Additional file upload and vendor remittance delivery options
Paymode-X for Reimbursement
Convert costly paper expense reimbursements to electronic payments E-mail notification of expense payment and expense report details
PayMode e-Invoicing
Enable the receipt, routing, approval and/or dispute of electronic invoices Lower administrative costs and provide greater visibility into your procure-to-pay process
Client Access
—
Transaction & Information Services Comprehensive Payables’ Web-based tools
allow for real-time management of payment and remittance data CashPro ® Online Works ® Paymode-X
Source: Bank of America
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Bank, Sample Offering (B of A)
(Cont’d.)
Easily migrate from paper to electronic payments:
Easy-to-implement and cost-effective
– Designed to reduce the administrative and IT effort typically required to start an e-Payments program
Fully integrated end-to-end payment process
– Uses your preferred format
Single point of origination
– Send instructions for all payment types in one file: card, ACH, wire and check printing and distribution
Accelerates enrollment program
– Multiphase campaign enrolls your vendors
Consultative services
– Adds value to both the payer and receiver by going deeper into the supply chain
Expense savings
– reduces per check costs and increases card rebate potential
Enhances reporting
– Includes supplier-friendly remittance and online access
Source: Bank of America
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Trends in Payment Options
• Banks and p-card providers merging traditional payments with card options • Payables financing offerings are replacing factoring • P-card use extending to non-traditional purchases by state and local government www.TheAPNetwork.com Page 33
Thank You!
© 2011 Financial Operations Networks LLC