In 2007, the B2B or wholesale payments industry will continue its shift to automated payments from check-based payments. While checks will continue to predominate, payments that can be made in real time, on a stipulated date, with good funds and at a low cost are intrinsically appealing. As a result, the payments process should become automated and simplified; greater preventative risk mitigation will be applied; and all actionable data will be gathered, analyzed and provided in usable formats.
Financial institutions and the vendors that support them will concentrate on three key opportunities:
1. Check electronification and conversion activities.
2. Fraud prevention and risk mitigation.
3. Capturing and leveraging remittance information.
Despite the overall decline in check payments in 2006, they still accounted for 80 percent of total wholesale payments. But B2B electronic payments are growing, and wholesale check payments are forecasted to drop to 68 percent by 2010. Overall, electronic payments are preferred over check payments because they are less costly to process, settle in a timelier manner and provide the ability to transmit remittance information in an automated fashion to support straight-through processing (STP).
During 2007, a primary focus of banks will be check electronification and conversion. Tools that capture check images and process them for settlement will continue to evolve. Industry groups will promote standards to encourage interoperability among check imaging systems that also will facilitate the processing of returned check images. And check conversions will increase due to the continued adoption of the automated clearing house's (ACH's) accounts receivables conversions (ARC), point-of-sale (POS) and back-office conversion (BOC) capabilities.
Fraud prevention and risk mitigation also will receive considerable attention in 2007. The current climate is a perfect storm of regulatory-driven compliance issues for financial institutions, corporate demands for regulatory support and emerging technology capabilities. Applied correctly, these factors can lead to improved processes that will better the bottom line for all parties involved in payments.
An important component will be reconsidering the siloed approach for authorizing users and tracking fraudulent behavior. Rather than developing fraud-prevention mechanisms and risk mitigation by individual payment systems (e.g., ACH, wire transfers and checks), cost efficiencies and improved results will be accomplished by centralizing such functions and sharing the data derived from each system.
Progress on STP
STP -- from payment initiation, to receipt and posting, to the respective companies' internal accounting systems -- remains a payments industry goal. Corporations and their banks increasingly will look for solutions that automatically capture remittance information and pass it along with the payment for final posting. Simplified standards will be incorporated into accounting packages and adopted by financial institutions. Industry groups will give high priority to the inclusion of remittance information with electronic payments.
Banks fear that other entities will take control of the payments processes. But they will have opportunities to strengthen client relationships and generate new revenue streams by providing value-added services that are tied to payments and that integrate with corporates' financial systems.