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Payment Trends for Finance Pros to Watch in the New Year

  • By Andrew Deichler
  • Published: 12/14/2015
paypointThe payments landscape is changing by the day. While some antiquated payment methods like checks and cash are still around, innovation is abundant in the payments space. For the United States, there have been four key payments developments that I believe will have great significance for treasury and finance professionals in the New Year.

Faster, smarter payments

Faster payments continue to dominate discussion at every treasury and finance event, with the Federal Reserve working on speeding up the U.S. payments system and NACHA rolling out same-day ACH. Yet when it comes to B2B payments—which are a key area of concern for treasurers—the faster options might not be the best ones. During a panel session at Sibos 2015, Ather Williams, head of global transaction services, Bank of America Merrill Lynch, stressed that simply making payments faster shouldn’t be the end goal—they also need to be smarter.

Commenting on same-day ACH, Williams compared the reconciliation rates for paper and ACH payments for his corporate clients. “If they get checks and paper invoices, because of OCR technology, they can reconcile 95 percent of those payments,” he said. “For ACH, it’s less than 50 percent. So getting money before you can apply it is really not valuable. So you can make them faster; that’s great. But how do we make them smarter?”

There is also a question of whether corporates will need to be available 24 hours a day for faster payments to work. “Are they going to be able to deal with what’s hitting them, 24/7, or react to payments that are 24/7? I think that’s a really interesting question,” said Liz Oakes, associate director, management consulting, senior leader for payments, KPMG, at the same session. Therefore, she believes banks will need to put layers in place so that corporates don’t need be available around the clock.
“Going forward this is where ‘smarter payments’ could provide real straight-through-processing (STP),” said Magnus Carlsson, AFP’s manager of treasury and payments. “Imagine payments that come in during the night and get booked at the same time. What a treasurer would need to do then is just confirm that there are no exceptions, or other errors. But to get to that utopian point we also need to address the whole payments spectrum of standards and accounting systems, etc.”

Bitcoin bounces back

Is bitcoin back? Bitcoin’s value currently sits around $400 and users are performing more bitcoin transactions that ever before. Bitcoin looks set to become the world’s sixth largest reserve currency by 2030, according to research by Magister Advisors.

The real reason behind bitcoin’s recent resurgence is the blockchain—the digital ledger that records bitcoin transactions. Magister Advisors’ survey found that the top 100 financial institutions in the world plan to spend $1 billion on blockchain-related projects over the next two years.

Some experts believe that bitcoin and other virtual currencies could possibly play a role in the global push towards faster or real-time payments. “These payments settle in minutes—today,” said Claudia Swendseid, senior vice president of the Federal Reserve Bank of Minneapolis, at the most recent meeting of AFP’s Treasury Advisory Group (TAG). “So they are among the fastest payments that we have available. And cryptocurrencies—setting aside the bad actors who are using them—are highly secure. Today, adoption is miniscule. But I wouldn’t be surprised if, in 10 years, adoption is a whole lot greater.”

The gradual adoption of EMV

The EMV liability shift happened on October 1, meaning that merchants are now liable for counterfeit fraud that occurs at the point of sale, rather than the card issuers. But if you thought that meant that 100 percent of retailers would be EMV compliant by the end of the year, think again.

According to a report from Visa released after EMV’s first full month, there are now 529,000 merchant locations in the U.S. that are enabled to accept chip cards, a 49 percent increase from September. However, with about 8 million retail locations in the U.S. that accept card payments, there is clearly still a long way to go.

The news comes as no surprise. At a September TAG meeting, several retail treasurers said they don’t plan to migrate to EMV by the end of 2015—and some currently have no plans to migrate at all. Many retailers aren’t rushing to adopt EMV is that it’s simply not very good at its one function—preventing fraud. According to a May report by Forrester Research, retailers are more interested in investing in mobile and contactless payments, because they offer superior security to EMV. Given those trends, the research firm doesn’t expect widespread adoption of EMV until 2020.

Furthermore, some retailers just don’t see enough fraud at the point of sale to adopt EMV. “For high volume, low value retailers, such as fast-food chains, the investment cost is by far higher than the little fraud they may see,” Carlsson said. “Therefore, in a business case scenario it is more economical to be responsible for the fraud than making large investments in new and expensive terminals.”

BEC scams

Of course, we can’t talk about fraud without mentioning business email compromises (BEC) scams—otherwise known as the biggest fraud threat to treasury and finance.

Fortunately, because so many financial professionals have encountered these scams, awareness is growing considerably. Nevertheless, it’s still a good idea to know what to look for. That’s why this month, AFP released a new Treasury in Practice Guide that focuses on BEC scams. AFP has compiled insights from security experts, law enforcement officials, bank representatives and corporate treasury and finance professionals, to give you the tools you need to recognize a BEC scam immediately.

Download AFP’s new Treasury in Practice Guide on BEC Scams here.

A longer version of this article will appear in the December edition of AFP Exchange.

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