With 2016 less than two weeks away, let's look back on 2015 and see what we learned about treasury operations and payments this year.
Treasury’s increased use of technology did not translate to making working capital and liquidity management routine tasks.
Despite many new technology tools to assist treasurers in their role as protector of the corporate coffers, liquidity management remains a very “human” task. While technology and automation (whether local or cloud based), are playing a key role in managing liquidity and providing more control and visibility, technology alone will never replace human decision-making. The importance of protecting liquidity and maximizing working capital is mission critical in the new post-crisis world. The human ability to assess more than the just the numbers is much more important than any software application.
The often rumored and still non-existent “new payment system” remains a hot topic.
The payment, treasury and banking world is replete with chatter about the emergence of a more efficient payment system. Even the Federal Reserve is now involved in leading and corralling together many industry players to develop a “new payment system”. However, as we end 2015, this goal still remains elusive.
All of the many new mobile, online and other payment methods and applications still require one thing: use of legacy payment system rails to transfer monetary value. What we have now is comparable to a roadway analogy: Many new and exciting “on-ramps” (payment applications/methods) that lead you onto an old, tired and expensive (but still functioning) “highway” (legacy payment rails).
Corporations did not undertake a riskier approach to investments in order to increase financial returns in 2015.
Corporations and treasurers remain extremely focused on safety, liquidity and risk aversion. The most favored investment for excess cash continues to be the very safe and very basic liquid money market. Despite historically low interest rates on money type investments, very few corporations are willing to chase a few extra basis points associated with a riskier investment. The level of risk is simply too high, given the additional nominal return. The economic crisis brought down many companies that were deemed to be stalwarts of the financial world. This left a lasting impression on the minds and everyday thought processes of corporate treasurers. Better to be safe than sorry.
No single mobile wallet has gained much traction.
Despite all the hype about mobile wallets, it remains a very fragmented and disparate marketplace. The same question that was asked a year ago can be asked again: Are mobile wallets solving/chasing a problem that does not yet exist? The same challenges to mobile wallet adoption that existed a year ago, remain today:
- Multiple types of technology are fighting for market share (NFC, QR codes and others).
- Consumers are not demanding it.
- Too many competing and proprietary mobile payment applications
- There is no compelling reason to make a payment with a mobile wallet application.
- Consumers lack trust in mobile payments security.
- Merchant rewards remain disconnected from the mobile payment.
EMV payment card transactions have not come to dominate the retail marketplace as predicted.
The transition from mag-stripe cards to chip embedded cards continues to be problematic.
- Some large card issuers have not even sent new chip cards to their customers.
- Many retailers do not yet have EMV capable terminals.
- The EMV checkout process is longer than a typical card swipe transaction.
- Consumers are confused as to a chip card and a regular mag stripe card.
- If implemented, the PIN aspect could be very problematic, as most people have multiple credit cards and will probably use the same PIN for all, thus reducing the overall fraud protection.
The shifting of B2B Payment transactions from paper checks to e-payments is still a long slog.
While many corporations continue to transition from paper-based payments to e-payments, B2B payments are still dominated by checks. There are many advantages to e-payments, including but not limited to: direct cost reductions and efficiency improvements in payments processes and treasury operations, better staff resourcing, easier accounting and ERP integration, stronger fraud controls and improved cash flow management.
Payment card usage grew faster in 2015 than in prior years.
In the first half of 2015, dollar volume on general purpose consumer and commercial payment cards grew 8.6 percent over the same period in 2014. This marks the fifth straight year of increases in dollar volume. The annual projected volume through the payment card system for 2015 is projected to surpass the $5.4 trillion dollar mark. Debit card volume comprised 63 percent of all transacted value. Visa and American Express are ranked first and second for credit card spend and MasterCard took second place for debit card usage. In the first six months of 2015, total payment card volume was $2.67 trillion, with the Visa and MasterCard brands controlling $2.23 trillion or 83 percent of the total dollar volume.
While the growth in consumer payment card usage is not a great surprise, the continued double digit growth in B2B payment card volume is eye opening. More and more businesses are utilizing corporate and purchasing cards for routine accounts payable payments. For businesses accepting card payments, they must understand the rules, costs and rates that are unique to the commercial card cost of acceptance. It is surely not the same as receiving a simple business check payment. However, all organizations must fully understand the advantages and disadvantages of accepting card payments.
Joseph Bizzarro is chief executive officer for Vizant, an advisory firm with a specialty focus on payments and treasury operations.