Innovation was the key theme of the NACHA Payments 2010
event, held last month in Seattle. On both the consumer and
corporate sides of the payment industry, the pace of technology
breakthroughs is helping financial institutions to respond to their
customers’ needs at an intuitive level, as Victoria Conroy
reports.
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At the recent NACHA Payments 2010
event, a group of key industry players outlined in a thought
leadership panel discussion how innovation had influenced their
business models, and what the pace of change means for the consumer
and corporate payment industry.
Sharon Petrey, corporate director
of the treasury unit at soft drinks giant Coca-Cola Enterprises,
outlined one initiative that Coca-Cola is undertaking, involving
its customers who pay cash on delivery (COD). The aim is to roll
out a cashless payment system.
“This may come as a surprise but
there is a lot of money in those Coke trucks you see driving around
town,” Petrey said.
“We are the bank to many of these
COD customers, and there are about 250,000 of them in the US and
Canada.
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By GlobalData“Typically what happens is that our
drivers are going out, delivering the product and collecting cash
at the point of sale. It’s quite frightening – 80% of the number of
payments that we pick up or collect across the enterprise each year
come from COD customers, and it’s about 20% of the value, which
isbns of dollars.
“The treasury unit has been working
very closely with the business and we are going to pilot very
shortly a cashless payment system for our drivers. Our model will
be that the drivers will drop off the product and leave, and we
will take care of the payment process on the back end.”
Teaming up
Petrey said that Coca-Cola is
teaming up with third-party vendors, technology vendors and banks
to get COD customers onboard with the aim of getting them to sign
up to a recurring ACH debit system which is the company’s preferred
option, although Coke customers can also pay by credit card.
“We are very mindfully and
purposefully working on this segment of customers because it is so
heavy, time-intensive and dangerous, with our drivers carrying
funds and our customers accumulating funds,” Petrey said.
Interestingly, Petrey added that
Coca-Cola was determined to keep much of the project in-house to
determine whether a third-party is really needed to implement the
scheme, although she added that it would be a moot point if a
supplier already had a portal which could interface with the
company’s customers.
“We think that the benefits are
certainly going to be an improved, safer environment, we’ll be able
to reduce theft and accelerate fund availability by about three or
four days, and certainly it will help us improve our route
efficiency,” Petrey added.
“A lot of times our drivers are
going out and are unable to settle some transactions because the
customer doesn’t have enough cash.”
But would small businesses be
receptive to Coca-Cola eliminating cash and taking payments
directly from their bank accounts? According to Petrey, the small
businesses that the company deals with act much more like
consumers.
“We have collected data across the
board that implies that as with credit card acceptance, they’re
likely going to use a consumer card instead of a business card,”
Petrey said.
“That is not a bad thing for us as
a merchant. We have a pilot project that’s been running for a
couple of years using direct debit and it has been quite
successful. We have it in Detroit and Phoenix but we’re not trying
to scale that at the moment because we want to put this larger
solution in place and that is where we will put our ACH debit
learnings in.”
Cynthia Murray, a senior
vice-president of innovation and development executive at Bank of
America/Merrill Lynch, expanded on how the bank was tapping into
the trend of payment channel convergence.
“We are building what we call a new
eco payment system, and a big component of that is a payment hub,”
Murray said.
“The initial phase of the payment
hub will give us the ability to provide clients with more
visibility, regardless of what channel they use to initiate their
payments.
“When we talk about channels, we
are talking about the file channel, the online payment channel, and
we will soon be introducing a mobile channel, and then you have
some of those old channels like the fax and e-mail channels.
“The payment hub will give us the
visibility, regardless of what payment channel the client uses, to
initiate the payment and they’ll be able to track and trace the
wire or ACH payments that require a certain degree of repair.
“We will also be able to integrate
the payment channels into the hub so that we can achieve
straight-through processing, which becomes very complex when you
become global. Many of our clients, regardless of size, have
suppliers outside of the US or they have to do collections outside
the US. Having that transparency as well as straight-through
processing is critical.”
Enhance
channels
Murray added that the bank would be
building more intelligence into how a client could create the
payment. Given that many of the bank’s smaller clients don’t have
the resources to build their own system, it is imperative for the
bank to enhance its own channels to provide that kind of
intelligence.
“With the payment service hub, once
you tell us what account you are going to debit, and where you are
sending the payment, we’ll be able to dynamically present what
payment choices you have,” she said.
“What we hear from corporate
clients is that they want to be able to use the same format
regardless of the channel. If they export payments using the online
channel, they may want to do it in their proprietary format, so we
are creating a mapping utility that we can leverage regardless of
the channel.”
But Murray stated that, despite
this, more intuitive serving of its customers’ needs, there is
still more to be done in terms of dealing with the many different
file and payment formats around the world.
“We do need to get better at moving
more towards industry standards, and there are a lot of challenges
out there, particularly when you have local formats that are so
unique,” she said.
“The US has local formats,
particularly when it comes to low value payments. Many countries in
Asia have their own unique formats.
“As a payment industry, we need to
make a lot more progress in terms of standardisation, and the
payment hub and that whole eco system we are developing will get us
closer to that so we can provide our clients with the same level of
service, the same kind of visibility and the same kind of leverage
regardless of what channel they using.”
However, Murray stated that she
does see an opportunity to monitise the data that will be flowing
through the bank’s systems.
“There is value as real-time
payment information can be better populated. There is also value in
cash forecasting tools and in going to a single place to approve
payments,” she added.
“Not everyone wants this but some
clients want their file payments as well as their online payments
integrated into a single panel for approval purposes. They want
that second-level approval capability that we can offer by having a
consolidated view for our clients.”
Innovation
cycle
Lesley Bertha, executive
vice-president, global sales and relationship management at
Fundtech, described how the technology innovation cycle is speeding
up due to so many initiatives coming from several markets
simultaneously, and how the transaction services businesses has
been transformed by it in recent years.
“The cycle has increased for
several reasons,” Bertha stated.
“You have banks that are adopting
these ecosystems which is going to revolutionise the way that
payments are viewed, and you’ve got increased investment in
transaction services because the market has recognised that this is
a good business to be in, as well as the globalisation of the
expanding client base.
“If we look at what really
accelerated the spark, the 2008 financial crisis really shut down
the traditional profit drivers of our business. When the dust
settled, investment banking, credit markets, commercial lending,
and mortgage businesses all came to a serious pause.
“What was left was the transaction
services business, a healthy and growing business. Some could argue
that it was a sexy business and an attractive business to be
in.
“The banks realised they needed to
spend more time directing a little more energy to that side of the
business, so now we have seen an influx of investment. Earnings
from the big banks demonstrate how important this business is to
the health of financial institutions. It has taken us 30 years, and
a global financial crisis, to bring us to centre stage.”
According to Bertha, the
transaction business is supporting an increasingly globalised
marketplace.
“When you think of the trade
business, the US has $11bn dollars daily in trade and 97% of that
business is the small business market,” she said.
“It tells us that the dynamics are
changing, and that means greater need for analytics and more data.
Siloes are being broken down, which affords us the opportunity to
aggregate the data, to mine the data, to add value and to monitise
the data, which is making a difference in providing insights to
corporates and to SMEs. Technology is here and no one knows what
the future will bring but things are clearly changing.”
Chris Ward, senior vice-president
at Capital One, described how the emergence of the mobile channel
has brought new services to market, and the path taken to get
there. The mobile banking channel promises much, but several
industry players have been frustrated by a hitherto slow pace of
development.
“In 2000, I was with an institution
and we had just introduced mobile banking for our corporate
customers,” Ward said.
“They were able to check their
current balances, make positive pay decisions, approve wire
transfers that were initiated by somebody else, and we were
high-fiving each other because we thought this was going to
revolutionise banking. We were lucky to scratch about 1% of the
customer base to use that capability.”
But the situation is very different
now.
“In the US today, 90% of the
population uses some mobile device,” Ward continued.
“Of that, 40% is on a 3G or 4G
network, which allows more speed and more data movement, and for
those aged between 12 to 18, 75% of those who are online also have
a mobile device.”
Ward outlined how the adoption of
mobile phones compared to other technologies, and the lessons that
institutions looking at the mobile banking space could draw from
it.
“If you go back to the 1980s, and
the adoption of personal computers, it took five years to reach 10m
users. In the 1990s, it took about two and a half years to get to
10m users for internet browsing. If you look at the iPhone in 2007,
it took six months to get to 10m users. There are now roughly
around 60m users in the two and a half year period since the launch
of the iPhone.
“Relative to smart phone devices,
BlackBerry and the iPhone are the only ones that are seeing growth
in terms of smart phones that are being deployed. Apple grew 60% in
one year alone, they generated $4.2bn in revenue in 2009 from the
App store, and it’s projected to be around $23.5bn by 2013.
“This past year they saw a 700%
increase in downloads of applications from the App store.
“If you look at these devices which
are becoming ubiquitous and consumer adoption rates relative to
that, a survey done in 2009 around mobile banking asked whether the
respondent knew what mobile banking was, and 15% said yes, and they
actively used it. Contrast that to a decade ago or even prior to
the launch of the iPhone, it would have been miniscule at best.
‘Interesting
dynamics’
“There are predictions that mobile
banking will overtake internet banking by 2015, but we need to wait
and see. When you think of internet banking in the 1980s to how
that has taken off now, mobile banking will have a much faster
adoption rate.
“The other interesting dynamic is
that of the banks that are offering mobile banking capabilities,
40% of their users are iPhone users, which is important in terms of
how consumers are accessing banking from a mobile perspective.
“Five of the top 10 retail banks
either introduced or did an update of their mobile application
through Apple, and if you look at the number of top free downloads
of financial services at the App store, the financial app downloads
are the most popular free downloads,” Ward added.
But while the mobile banking
landscape looks ripe with growth prospects, Ward added a note of
caution.
“The challenge that all of us have is that while it is great to
offer mobile banking, just as with the introduction of internet
banking, the fraudsters figure out ways to commit fraud, and the
same thing will happen on the mobile channel just like it did on
the other channels,” he said.
