NACHA received quite a bit of feedback on why U.S. corporate adoption of faster payments is an uphill climb during a session at the latest Payments Innovation Alliance meeting in Washington, D.C.
THE FASTER PAYMENTS PLAYBOOK
Over the summer, the Payments Innovation Alliance announced its Faster Payments Playbook initiative. The project is intended to provide banks and corporates who are developing faster payments strategies with playbooks that can give them a greater understanding of the capabilities and attributes of the multiple solutions available.
The project consists of several subgroups. The corporate faction aims to create a playbook for businesses, government agencies and nonprofits, and focuses specifically on how available faster payment offering support remittance information. There will be a printed playbook that NACHA will distribute, but there will also be an online interactive tool that will be routinely updated.
At the Alliance meeting, NACHA asked what should be included in the first version of the playbook.
Defining “Faster” Payments
Much of the conversation at the meeting centered on what “faster payments” truly are. The term is often used interchangeably with real-time or instant payments, but a payment doesn’t necessarily have to happen in seconds to be considered faster than the norm.
The concept of faster payments is still relatively new, and generally, corporate treasury professionals aren’t the first ones to hop on whatever flashy new technology is hitting the market. So as one banker in attendance noted, NACHA’s playbook needs to clearly define “faster payments” if it hopes to truly be a useful tool that can aid in mass corporate adoption. Is it just faster settlement, or is it also faster availability? This needs to be clearly communicated. “If we’re talking to corporates who have no understanding of what faster payments are, you have to boil it down to one, super basic definition,” she said.
For example, some corporates and banks in attendance consider NACHA’s Same Day ACH service to be part of the faster payments conversation, especially for corporates. “I would argue that the faster payments definition should include Same Day ACH; not every corporate is going to need payments to be immediate,” the banker said. “Some of them are used to payment settling on the next day, so for them, same-day is faster.”
And while banks and consumers might get wowed by the technology around faster payments, corporates are only concerned about the bottom line. “From a corporate perspective, they only care what happens to them,” she said. “When does the receiver get it? They don’t care how it happens.”
To that end, irrevocability is incredibly important, noted one attendee. “The person who receives the funds needs to know that they’re going to be able to keep those funds,” he said. “That should be part of the definition of what actually equals a faster payment, because that’s one of the key issues. When we look at some of the other countries that have implemented faster payments, the irrevocability piece is what qualifies it as faster. Because otherwise, it’s just like a lot of other channels that are out there.
Differences in Corporates
One important point that came up in the discussion was that the size of the corporate can determine the faster payments solution that it needs. A large, multinational corporation is clearly going to have different needs than a medium-sized business in terms of payments. “One size does not fit all,” noted one attendee.
The need for faster payments will also differ by industry. For example, an insurance carrier might need to make immediate payouts to consumers on a regular basis. But a large manufacturer with a number of suppliers likely wouldn’t need to pay any of them in real-time unless a payment some gets missed. “If you start getting into the differences in corporates—an insurance company versus a traditional industrial corporate will have different considerations,” said another attendee.
The Need for Remittance Information
The corporate playbook is heavily focused on remittance information because that is perhaps the most important aspect of the payment to a corporate. As Magnus Carlsson, AFP’s manager of treasury and payments noted, for corporate end-users, the speed of the payment isn’t as important as it is that the payments are “smart” and contain sufficient remittance information.
“What we know now that in many cases for ACH, remittance information is sent by email—and sometimes it’s even sent by regular mail,” he said. “So, consider Same Day ACH if the remittance information is sent by regular mail. What good is the speed? You can’t reconcile the payment until you get that information. So when we talk about faster payments, we also need to talk about smarter payments.”