The year 2017 is really the year of faster payments, as a number of initiatives are moving from the proof-of-concept stage to reality.
By the time AFP 2017 rolls around in October, we’ll have even more to talk about, as three of these initiatives are slated to surpass significant milestones in the coming months:
- The Faster Payments Task Force, led by the Federal Reserve, is scheduled to release the second part of its whitepaper, The U.S. Path to Faster Payments, sometime this summer.
- The Clearing House (TCH)’s Real-Time Payments System (RTP), which has been in development for the past couple of years, is scheduled to launch in third quarter 2017.
- NACHA has already launched Same-Day ACH, but come this September, the service will be expanded to include debit transactions.
At the same time, the marketplace is virtually boiling with new payments applications and platforms, from established actors, new developers and startups, many of which have faster or real-time capabilities. So was this focus on speed a timely one? Clearly.
It should come as no surprise that faster payments dominated the discussion in many sessions at NACHA’s recent annual conference event, and I am confident that trend will continue at AFP 2017. Indeed, it is almost as if the paper check is a fragment of the distant past, right?
Not so fast. In the NACHA session I participated in, we sought to provide insights into what the current corporate payments landscape actually looks like. And for corporate treasury professionals, as interested as they may be in faster, electronic payments, checks are still the old standby. I presented some findings from the 2016 AFP Electronic Payments Survey, which showed that the use of checks for B2B transactions actually increased to 51 percent, up 1 percentage point from the 2013 report.
So, even with all the advancement in the payments field over the past three years, adoption has not followed along. Why do I keep bringing this up? Well, what our latest report says is that the situation is not as straightforward as one may think when it comes to corporate payments. Feedback from the session was positive and indicates that in reality checks are still welcome, even in the middle of the hype.
Finding the disconnect
Something is clearly missing in the payments industry. With all the new developments, there should be a continued declining trend is the use of checks, right? What’s the holdup?
One of the reasons for this, I believe, is the fragmentation of different payments solutions. The technology may be really sophisticated and the functionality may bring some wonderful advancements. But all of these solutions are not interoperable and lack the reach that most corporations would desire.
This brings me back to the Faster Payments Task Force and the highly anticipated release of the outcome from the past two years work, put in by over 300 participants. It is important to note that, along with the release of the final report from the task force, there will be a number of recommendations intended to steer the private sector in the right direction when developing new payment systems. We will be reviewing these during the Payments Roundtable at AFP 2017.
Of course, there will be challenges to reshaping the entire U.S. payments system. Interoperability, clearly, is one of the keys to successful adoption going forward. As I’m part of the Faster Payments Task Force I attended to what will most likely be the final meeting of the original task force last week. A number of wrinkles were ironed out and now I can’t wait for the final report to be published this summer.
Preparing for same-day debits
As mentioned earlier, by the time we get to AFP 2017, we’ll have had our first taste of Same-Day ACH Debits. Many discussions at Faster Payments 2017 focused on how prepared corporate end-users are to handle these transactions. Overall, it seems that the education from many corporates’ banking partners has not been sufficient. One corporate I spoke with mentioned that she had to reach out to her bank in order to get some updated information. What is really clear is that further information and guidance on what implications Same-Day ACH Debits will have on corporates is extremely important.
As one corporate said, if we get hit by a number of $25,000 Same Day ACH Debits fairly quickly, it will definitely affect our cash position and could potentially cause problems. This highlights some of the implications corporates will face, come September. So it would be wise to contact your banking partners and discuss in depth what effects Same-Day ACH Debits will have and what you as a corporate client need to do to prevent potential problems.
The future of payments
No matter what payments or treasury event you are attending lately, you’re going to hear quite a bit about the greater push into the financial technology (fintech) area. These conferences are turning their focus toward new technologies like blockchain and distributed ledgers, because they are the future of the payments space itself. As such, corporate treasurers would be wise to meet with both the new and old players to see which technologies are applicable to their business.
Attendees of AFP 2017 will get a chance to embrace the fintech revolution as well. Fintech has infiltrated multiple session tracks this year; Treasury Management features a session on fintech and millennials, while Payments has a discussion on leveraging fintech to optimize your invoice-to-cash cycle. So in closing, it’s time for treasury professionals to get on board with fintech, whether they want to or not. These technologies are going to shape the future of not only payments, but treasury itself.
Register for AFP 2017 here.
Magnus Carlsson is manager, treasury and payments for AFP.