Businesses would be more likely to choose wire transfers for electronic payments -- rather than ACH or check -- if they were provided with more-standardized remittance information with wire payments, according to a joint study by The Clearing House Payments Company (which operates CHIPS) and the Federal Reserve Bank (operators of Fedwire). The two rivals in the wire space joined forces for the study, which examined responses from 381 corporate decision makers, hoping to encourage corporates to use wire transfers more often.
Ninety-four percent of [corporate participants] said remittance information was valuable to them," says Hank Farrar, SVP with The Clearing House (New York). "[They] understand the value of having information with their payments."
With standardized data, businesses can post payments to their internal systems with less manual intervention. "It makes it difficult to process a payment in a straight-through manner without remittance information," says Ken Isaacson, an assistant VP with the Federal Reserve Bank of New York.
What was eye-opening about the study, though, was that 58 percent of participants said they would pay extra for wires that included remittance information. "The corporates actually indicated they were willing to pay more for this information," adds Isaacson.
One of the chief impediments to including remittance information with wire payments is the lack of standards, according the report, "Business-to-Business Wire Transfer Payments: Customer Preferences and Opportunities for Financial Institutions." "The problem is, you've got companies, banks and software providers all trying to figure out what to do about this," explains The Clearing House's Farrar. "Which way do you go? Corporates are looking for standards."
"As a result, we believe the wire transfer operators, banks and software vendors need to agree to a common standard for remittance information," explains the Fed's Isaacson. "We need to create the right incentive for this. ... Corporates are likely to use wire transfers more if the process becomes easier and more efficient."
Isaacson acknowledges that it will be a challenge to satisfy every corporate in constructing a standard. The trick, he notes, is to find commonalities to help meet most existing needs. "Banks have the opportunity now to influence the future of wire transfers as a product," he says. "This will be a way to preserve wire transfer as a preferred payment method."