Electronic | TREASURY UPDATE

More Payment Data in US Wire Transfers

On April 14, 2010, In ACH Automated Clearing House, Electronic, STP, Uncategorized, By Craig Jeffery

At NACHA’s Payments 2010 Conference, there is a very timely and interesting topic being presented on changes to wire transfer information. Additional information will be able to be included with the wire transfer in the near future…we encourage you to attend the session. The session details can be found at the Payments Website. The session description is from their website.

B2B Payments Take A Big Leap Of Convenience

613/614

10:00 a.m. – 11:15 a.m.

The Payments Biz

At the end of 2010, a new era of B2B electronic payments will begin for banks and their corporate customers. That’s when the nation’s two wire transfer systems, CHIPS and Fedwire, will be able to include remittance information with a wire payment. For payments professionals, this change will rationalize the front end of the payments system by creating parity between the ACH and wire transfer in terms of convenience, ease of use, cost, efficiency, and environmental benefits. Panelists discuss the potentially significant impacts this development will have on all parties in the payments value chain. Topics include: opportunities for banks to embrace the wire remittance standard as it becomes effective at the end of 2010; potential impact to wire and ACH usage and volumes; steps banks, corporations, and vendors should take to prepare payments professionals to realize the benefits of the new standard; and best practices for implementing a comprehensive native electronic payments strategy.

Level: Advanced

Susan Boeri

Manager, Treasury Services, GE Corporate Treasury

Claudia Swendseid

Senior Vice President, Federal Reserve Bank of Minneapolis

Paul Trozzo

SVP, Product Group Manager, PNC Bank Treasury Management

Moderator: Rossana F. Salaris, AAP

Senior Vice President, The Clearing House

Do You Speak Client?

On October 5, 2009, In Automation, Electronic, Languages, Mars and Venus Treasurers and Controller Differences, Technology Tuesday, Treasury Project Management, By Richard Thompson

I have often found that Gary Larson’s “Far Side” cartoons succinctly capture the problems with communication. The cartoon that says “What we say to dogs” and “What they hear” is one of my favorites. In that cartoon you see the man telling the dog Ginger to stay out of the garbage or else, what the dog hears is “blah blah blah blah Ginger blah blah blah Ginger.” To see it on the web, use this link: http://www.flickr.com/photos/apotheker/10830160/

In the treasury world we have seen a great disconnect in what Banks, Technology Vendors, and Corporates say to each other and what the other hears:

· A corporate asks for functionality; the vendor delivers complexity.

· Another corporate asks for an easier way to manage accounts; the bank delivers a website that requires 2 weeks of training, has 3 forms of identification required, and does not support work flow.

· A Technology Vendor says that implementation requires 3 weeks of the Corporate’s time; the corporate hears that they can implement the technology in 3 weeks while still doing their full time job.

· A bank says that their product will ease reconciliation; the Corporate hears that the product will do reconciliation.

As consultants we have seen many times when people inside their own firms have had this same problem. IT, Finance, Treasury and Sales all have languages and meanings of their own inside of Vendors, Banks, and Corporates.

You hear what the others are saying, but do you understand? Can you afford not to?

Some techniques to help:

Vendors/Banks:

· Spend time learning the processes and procedures that your products will impact at the client, not just generically, but specifically at each client. This is the client lens.

· Determine the client’s real goals for the next few years and determine how your product(s) fit. This is what it means to have a solution.

· Help the client identify the real future needs based on these goals. Again, how do(es) your product(s) and their development
pipeline fit with the client’s needs?

Corporates:

· Define your processes, procedures and current technology by documenting where information comes from, how it flows through
the systems, what decisions it supports, how it is used by other departments and when it is required. Someone will need to pay attention to the format, how it is transmitted, when it is transmitted and who controls or owns the transmission and data.

· Clearly identify the company and departmental goals for the immediate (2-3-year) and 5-year horizons. Articulate how you
intend to use technology to achieve this, and create a document defining your critical needs. Share this document with
your bank and technology vendors. Evaluate them on how well they understand and help you meet these stated
needs.

· Meet with IT, Accounting, and any other departments that you support—or who support you. This includes upstream and downstream ‘customers’ Identify how changing technology or technology transmission methods will impact them. Discuss timelines, expectations, and other users of the information.

This won’t eliminate all of the crossed messages and problems, but it will help keep Ginger out of the garbage!

-rdt

Fed Reserve Check/ACH Crossover Point

On October 26, 2006, In Checks, Electronic, Thoughtful Thursday, By Craig Jeffery

Prediction: Estimating the Crossover point of Paper and Electronic Volume through the FED

The date when the US becomes a check-less society isn’t being forecasted by too many people. The fact that we are a less-and-less-check society is wonderful for all of us electronic-bigots.

The settlement of paper and electronic items occurs through direct on-us presentments, private channels and through the Fed. Getting highly accurate numbers of total market volume is quite difficult since the data sits in many buckets. The surveys that the Fed sponsors are not annual events -so securing current data on this shift is a challenge. The Fed is an enormous processor of many paper and electronic items – and they have very good statistics on what passes through their systems and facilities. And, their statistics indicate that the crossover (or inflection point) for ACH to top Checks at the FED is almost upon us if things continue at their current rate of change.

Bar chart based on the statistical data presented on the Federal Reserve’s web site.

Below: The top line indicates the decreasing check volume. The bottom line that is arcing upwards is the ACH volume handle by the Fed.

Where is that crossover point where ACH bests Checks for the volume title at the Fed? What factors will move that point sooner or further out?

Right now it looks like the Summer of 2007 will show the Fed processing more ACH items than checks. That seems far sooner than most of us thought just a few years back.

Corporate/Local Governments: What is the impact to your organization’s collection and disbursement plans? Banks: This shift has process and costs implications for your organization and for your customers – what can you do to help your clients take advantage of more efficient settlement methods? Even if your strategy is sound – the playing field is changing – are your tactics changing?

ACH Growth Continues Assault on Checks

On October 23, 2006, In Electronic, By Craig Jeffery

NACHA Total Network Traffic (via the Fed)

There is a great, and well known story around the growth of electronic payments.
Growth has continued in at double digits rates over the years, and there are two big points from this chart that we would like to make:

The top line growth has continued to be significant and it took about nine quarters to grow to about 500 million, then it took five quarters for the next 500 million of growth and another five for the next 500 million.
ARC is busting through the crowd. You can see the rapid rise up through the ranks and is already moved into third place on this chart.

ACH is definitely the wave of the present and the most efficient method of moving funds around when the transaction begins electronically. And, with ARC you can see that it is often the most efficient method of settling transactions for many consumer items that begin their life as a check.

ACH and Check Cost Trajectories

On October 12, 2006, In Automation, Checks, Electronic, By Craig Jeffery

Costs for ACH and Checks are on very different paths. Isn’t it obvious (without the data from the Fed) that the costs to process paper will continue to increase while the electronic items (ACH) continue their path of lower costs. This trend has continued for many years.

Note the initial cost advantage of ACH (Automated Clearing House) over checks from 1997 were about 1.5 cents. By 2002 the difference had double to about 3 cents. In 2005 we see a gap of about 4 cents – this is a substantial price advantage with ACH. Checks processing should rapidly increase over the short term with the greater use of image exchange moving volume away faster than the FED closes check processing sites (in 2007 we may see image exchange volume hit or approach 50% of check volume) – this will drive up traditional check clearing processes.

*Please note that these this chart reflects the costs that the FED reports. This does not represent all of the costs that a bank has (they may have some computer equipment, staff, contingency plans and data communication costs…and may want to make a profit too).

Moving to ACH is a great benefit for most organizations when done properly. The financial benefit can be enormous – and the largest area of realized benefit is in processing efficiency at your organization. English: Reducing your internal costs. Savings on reduced bank charges is a nice added benefit. Again – the biggest savings are related to your internal processes and not bank costs.

Checks…get rid of them! ACH… recommended by four out of five consultants….

Float is dead?

On October 4, 2006, In Checks, Electronic, Float, Working Capital Management, Working Capital Wednesday, By Craig Jeffery

FLOAT IS DEAD?

In recent years, several Treasury folks have been saying, “Float is dead” and they support that conclusion by multiplying the savings of float time by a current/short term interest rate. And in a low interest rate environment, they view that value as inconsequential compared to process efficiencies that can be gained in the Treasury processes. This leads to erroneous conclusions since it begins with a false premise.

What they mean to say and indicate is that Float is not as important as those areas. However, float remains very important for a number of reasons. Those that say that Float is not important begin with a faulty premise that all Float savings should be calculated at the short-term interest rate. This is true when there is a one-time change in Float – for example: moving a single payment or collection activity up a number of days. We agree – the value for that type of savings should be calculated using a short-term interest rate. However, a permanent or on-going change in float (i.e. moving a stream of payments or your entire universe of collection activities ) that should be valued using a longer-term interest rate – one that more accurately reflects the change you are making.

When making a permanent change in float due to some initiative using weighted average cost of capital or an interest or rate that approaches weighted average cost of capital is more appropriate. This can be supported by multiple lines of reasoning – including using an owner’s expectations. If you moved an entire stream of payments up, you would have those funds available to either be reinvested in the business or returned to the owners, they would NOT be expecting a 2, 3 or 4 percent rate of return on their funds (the short term rates of the past few years). They would expect to realize at least a weighted average cost of capital return- or give me my money back.

Using a number that is too conservative to value the Float savings that you can achieve (wherever it is in the working capital and cash conversion cycle) will lead you to make incorrect decisions regarding processes and bank services.

Float is certainly alive and important.

Remote Deposit Capture Decisions

On October 10, 2005, In Checks, Electronic, By Craig Jeffery

When determing whether to use remote deposit capture (RDC) services, what is being used in the calculation? Many are using a subset of the benefits, and others aren’t looking at all of the costs. Commonly used in cost/benefit analysis

Float
Transaction costs (bank fees)

How are you valuing the following:

Transaction costs (all cost, not just bank fees)
Account reduction (can you still close the accounts, can you combine accounts now)
Reconciliation changes
Time and safety issues (less/no trips to the bank)

What is the value in changing your process now in anticipation of expanded image exchange activity (say 50% of checks will be able to clear via image exchange in 12/2006)? If corporate conversion (to an ACH) becomes a reality, will an earlier conversion plan help your process/costs?

UPIC

On October 6, 2005, In Electronic, By Craig Jeffery

The Universal Payment Indicator Code (UPIC) is a welcome addition for many corporates who collect funds electronically. The UPIC is an account (associated with an ABA) that only allows money to be sent in. No debits can come out. The number is also portable from one bank to the next.

What does this mean?

That you can share your UPIC freely without worrying about paper or electronic fraud on your depository account (based on the UPIC numbers).
You never need to notify your customers to change the electronic remittance information (bank number and account number) again.

This is worth exploring for most organizations with over $100MM in sales, and for many below that level. There is normally a cost associated with this from your bank.

How it works (in the simplest terms): The UPIC is mapped to your designated bank account – and funds will pass from the UPIC account to your bank account.

TREASURY UPDATE

A Treasury Blog by Strategic Treasurer