Payment systems are critical to the economic vitality and competitiveness of the United States. Consider a company the size of Verizon, an enterprise delivering services and value to virtually every customer segment and demographic; efficient payments are critical to its own vitality and competiveness. With the cost of payments typically representing 2% to 6% of a company’s bottom line, the overall economic benefit of a faster, more efficient payments system can equal billions of dollars in opportunity.
Businesses of all sizes need to take action in developing an ecosystem that supports faster payments; in doing so, they will realize significant benefit from the efficiencies driven through this effort.
Imagine a world where the payment system is real-time and information-driven. Imagine a world where the payment and remittance data flow together, delivering the optimal efficiencies of straight-through processing and eliminating the need for out-of-band exception handling. Imagine a world where treasurers have the ability to manage cash flow in real time. Imagine a world where payers know the exact status of a payment. Imagine a world where a recipient has immediate access to the funds. Imagine a world where a payment delivers optimally against the attributes laid out by the Federal Reserve’s Faster Payments Task Force. This is why faster payments are important.
A Call to Action
The Federal Reserve’s task force began as a group of around 300 members with stakeholders representing eight key segments: consumer interest organizations, government and business end users; small, medium, and large financial institutions; non-bank providers; and other industry segments (e.g., regulators, academia, and standards organizations). The final paper the task force published in July 2017 announced 10 recommendations that will set the standard for making payments faster and more accessible to everyone. These recommendations focus on three key areas: governance and regulation, infrastructure, and sustainability and evolution. It calls upon stakeholders to continue collaborating to establish a ubiquitous way for people and institutions to make and receive payments.
The task force’s recommendations were built though broad collaboration by competing interests; everyone had a seat at the table, and the final result was built through consensus. A key driver of this consensus was around the overall net benefit an efficient payment system will have on the United States and its overall position in the global economy. Despite the significant efforts of the task force, and not to minimize the major accomplishments to date, the recommendations only created a foundation for the work that lies ahead. Realizing the task force’s vision is a shared responsibility.
In order for us all to receive benefits – such as quick access to capital and funds; greater efficiency and transparency; smarter, data-rich payments; and a path to address the unforeseen – now is the time to seize this historic opportunity.
Support the Vision
Examine opportunities in your enterprise for taking out costs and generating revenue. Prepare answers to questions about the overall net benefit of faster payments and how they will support an excellent customer experience, sustain capital investment, and provide shareholders with ongoing value growth.
There is not a single faster payments schema, but many. Choose the one with attributes that maximize the utility offered against your desired outcomes. Utility is a concept in economics that measures preferences over sets of goods. People are assumed to be generally rational and the rational individual will choose the payment method that offers the greatest utility.
For an organization the size of Verizon, it is vital for us to be able to service all of our customers in an efficient way. Our customer bases’ varied demographics create a need to support many payment methods (e.g., ACH, cash, credit card, debit card, PayPal, and wires) and form factors (e.g., NFC, EMV, and magnetic stripe). Each method offers a certain utility for the payer and the receiver. Understanding and quantifying the utility offered on each side of the transaction will enable insight into opportunities around benefits, such as, better supplier/customer relations, cost savings, cash flow management, and straight-through processing to accounts payable and accounts receivable. Corporates that understand this utility model for their cost of goods sold at the macro-payments level will be able to quantify the necessary capital investment to drive change.
The variety of use cases for payments means there are also countless opportunities to maximize their utility. Fortunately for the U.S., there is no single mandated faster payment system. This gives businesses and innovators alike an opportunity to achieve the right solution for the right use case that delivers the maximum utility of their unique payment equation. The U.K.’s Faster Payments Initiative has purportedly contributed significantly to the success of some new businesses, enabling them to thrive in this modern-day, real-time digital world in which we live. Socializing the vision of the task force and the existing solutions available in the marketplace builds consensus and drives understanding across large, often siloed, organizations. Successful socialization of the opportunity should yield a multitude of quantifiable ideas offsetting necessary investment or driving increased revenue. If payments costs truly take between 2% to 6% off the bottom line of a business, easy opportunities should be plentiful.
Work With Your Banks and Vendors
At a recent meeting with a number of other corporate practitioners, representing companies of varying sizes, someone asked if our technology partners or bankers had engaged with us in any discussions around the benefits and opportunities around faster payments. The majority in the room responded with a “no,” which I found quite astonishing.
Verizon’s banks seem to be in a minority – they have been quite supportive of the vision and have been communicating regularly. This is not just due to Verizon’s size; much of the dialogue has been through standard educational resources offered to all users of their treasury or payment processing services.
With this in mind, consider working with your technology providers and bankers to further the vision and the goal. Ask them what they are doing to enable this vision of faster and more accurate payments. What are they doing to simplify cash flow management? Technology companies are always trying to deliver efficiencies. Greater operational efficiencies drive more revenue toward investments, enabling continued delivery of high-value services at a competitive price.
Consider the opportunity to consolidate systems or outsourcing to a provider that is future focused. Consider adopting ISO 20022. ISO 20022 has become the de facto standard for financial messages and is being used globally, yet many corporates lack familiarity with the standard. Work with your technology providers and banks to do the heavy lifting for you. Standards drive interoperability, removing barriers with proprietary formats.
Changing the economics of the payments only serves to increase your bottom line. If your technology partners and banks are not speaking to you about this, they should be! They are the enablers of these capabilities – and if the incumbents are not helping you, there are many who will.
Realize the Vision
In order for us all to maximize and realize a future of a payments system that delivers maximum utility and drives continued economic vitality and competitiveness of the United States, we must embrace this opportunity. Join me in supporting the task force’s vision toward implementing the 10 recommendations in the final report. This will lead to a U.S. payment system that is fast, ubiquitous, broadly inclusive, safe, highly secure, and efficient. The task force set out a goal to complete this by 2020.
The complexity of the payments systems has slowed improvements at the traditional finance level, but there is a new generation of innovative payment providers emerging. Platforms such as Venmo, Zelle, The Clearing House’s new Real-Time Payments system, and blockchain provide instantaneous transfers anywhere and at any time, delivering significant utility to their user base. Participate in the ongoing dialogue, contribute to ongoing workgroup efforts, and identify the opportunities that will deliver results against your desired outcomes. Doing this will enable you to maximize the utility model directly, adding value for sustaining capital investment and ongoing growth to shareholder value. Take steps to make your own organization faster payments ready by 2020.
