current payment trends – cmta a focus on working capital and expense reduction

Current Payment Trends – CMTA

A focus on working capital and expense reduction

If only it were this easy…

2© 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Agenda

Common A/R pain points

Cost and prevalence of payment types Paper checks

ACH Debit

Website collections CC and E-Check

OBP

Cash

Integration with accounting system

Migration to electronic payments

Parting thoughts


Common A/R Pain Points

Inefficient paper posting process

Tedious re-keying of data in multiple places

Need to increase throughput without adding staff

Pressure to lower transaction costs

Lack of visibility and control

Need for better auditing and reporting

A/R follow-up when collection issues occur


Checks Still Dominate for Bill Payment

Checks continue to dominate C2B landscape for utility type services Easy to receive

Setup not technical

Universally accepted

Issues with checks Per item costs are high

Availability delays

Method of payment received from “Major Business Customers” Source: 2007 AFP Electronic Payments Survey

ACH Debits12%

Other14%

Checks66%

E-Check2%

Credit Card6%


Payment Methods

More Company Control

Less E

xp

en

siv

eM

ore

Exp

en

siv

e

Less Company Control

ACH Debit

Online Bill Payment

Credit Card Debit

E-Check

Credit Card

Check by Mail/Drop

OTC Check


Scanned at company site

Remittance data scanned and/or keyed from invoice/coupon

Posting available at scanning point

Eliminates keying from most images

Scanned at company site

Discretionary data can be keyed with each check or scanned from coupon

Electronic posting file available, combined with other payment typesInformation is input a part from the deposit process

Internal or External Lockbox

External Lockbox

Scanning

Keyed Data

Posting File

Scanned by provider

Remittance data scanned and/or keyed from invoice/coupon

Electronic posting file available from bank

Eliminates keying from images

Internal Lockbox

7

Remote Deposit

© 2009 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Key considerations for item processing

Internal factors Equipment upgrades

Staffing

BCP and continuity plans

Audit control

Process customization

Customer contact Centralized

Decentralized

External factors Declining number of checks

Environmental forces Check 21

ARC BOC

Bank fees

Location of provider


Decentralized Deposits

Courier or Drop-Off Pros

Effortless for company

Customer contact and convenience

Cons Availability of funds subject to

delivery method

Armored carrier forces early cut-off

Desktop Deposit Pros

Can be deposited immediately

Setup is universal

Cons Multiple steps for staff

Entry cost can be a barrier

Courier may still be needed for cash

Security of check items being deposited


Recurring ACH Debits

The silver bullet?

Most control for biller

Least expensive method Internal processing

Bank fees

Not quite

Most companies report a plateau

Returns, NOCs, and NSF still remain

Environmental changes Internationally consumer

protection laws are tightening


Company Maintained Website

Payment collection methods Credit Card

Client entered

Voice entered

E-Check – One-time debit

Multi-functional tool Company information

Service bulletins

Payment function is usually provided by third-party Credit Card and E-Check

options are expensive

Strict regulations on data

Cumbersome for consumers Usually for one-time

payments


Credit Card Payments

Cons

Different state laws and statutes affect strategy Regulated vs. Non-Regulated

Comparatively expensive on an average ticket basis vs. other methods

Very tight rules around protecting consumer data

Complicated pricing structure

Chargebacks can be a problem

Pros

Good funds model Less risk of returns

Widely used and accepted


Payment Processing Center Check


14

Online Consumer Preferences

• 52% of consumers prefer to pay bills at their bank’s site• Benefits cited by consumers:

Flexibility & control Easy set-up of automatic payment Protection

Source: 2007Javelin Strategy & Research

2%

3%

8%

10%

25%

52%

0% 10% 20% 30% 40% 50% 60%

Brokerage or other Investment-related site

Other

Online por.tal (e.g AOL, MSN or Yahoo!)

I have no interest in viewing and paying my bills online

Each individual biller's site

My bank or credit union's site

Streamlined process Fraud/Identity Theft


Online Bill Payment Usage


Number of US online households that pay bills online by generation

Electronify Your Online Bill Payments!

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Forrester’s Consumer Technographics® 2000-2005 North American Benchmark Studies, Forrester’s North American Consumer Technology Adoption Study 2006 Benchmark Survey, and US Census Bureau

Gen Yers(b. 1975-1990)

Gen Xers(b. 1964-1975)

Boomers(b. 1946-1963)

Seniors (b. 1900-1945)

ACTUAL FORECAST

60M

50M

40M

30M

20M

10M

0M


Source: Forrester Research, 2007

Bank online channel growth 30% faster than overall online bill payment growth

Banks will achieve nearly twice the five-year growth rate of biller sites by 2011

Online Bill Payment Projection


Gen Y EBPP adoption will increase by 157%

Gen Y will represent only 26% of US households, yet they will make up 36% of EBPP users

By 2011, Gen X and Gen Y will constitute 65% of EBPP users

Source: Forrester Research, 2007

18

Online Bill Payment Projection


How do you handle cash?

Expedited payments made by consumers at in-person or walk-in agent locations.

In person payments provide an alternative for your customers who do not have bank accounts and can’t mail a check or pay by credit/debit card.

Service validates and processes payments in real-time or in a periodic batch mode. Your customers receive a confirmation number and real time posting credit.

Reduces the expenses of late payment processing as well as cutting off and reinstating services

Data transmissions improve the accuracy and efficiency of A/R postings


Online Bill Payment Trends

In Summary Online bill payment growth expected to continue surging

Faster growth expected in bank-hosted channel Not a “bank vs. biller” battle

Large billers need a strategy for handling increased volumes of online banking payments and the challenges created by electronic exceptions May require a mindset shift around billing/payments practices

Paper remittances can be expected to continue declining Further impetus to outsource paper remittance processing


Working Capital Value Proposition

Increased number of electronic payments

Reduced DSO

Reduced Account Analysis fees

Reduced time spent reconciling account

Reduced number of rejected payments

Reduced number of inbound data transmissions

Compressed month end reconciliation


How to Streamline Receipt and Posting?

1. Automate the receivables process Receive a data file for both paper and electronic receivables

Standardize the use of remittance data across payment type

2. Integrate automated file to your accounting system Import file into system and initiate automated posting

Only work the exceptions that do not meet matching rules

3. Convert as many payments as possible Encourage trading partners to pay via ACH and OBP

Use electronic methods to receive data for paper payments

Maximize your online bill payments

Automate Automate Integrate Integrate Electronify Electronify


Accounting System / ERP

Automating Your A/R Process

Data files sent to Receivables Hub for each payment type

Hub creates standardized file per requested time and format

File transmitted to Acct system at requested time

File is imported and used for auto-posting

ACH Credits/Debits

Incoming Wires

Online Bill Payments

Remote Deposit

Bank Receivables Hub

Data files

Mail/OTC Payments

Data files

Card Payments

Data files

ConsolidatedData File


Integration Defined

Automated file received from bank

File uploaded into accounting system

Data used to identify customer and apply receipt

Receipts applied automatically by system

Leverages matching logic to minimize exceptions

Only exceptions need to be worked

Reconciliation can also be automated

24

. .ConsolidatedData File

Accounting System / ERP


Key Considerations

Business case is straightforward Banking partner can be consultative partner on this

Benefits can quickly offset initial investment

Need to consider future staffing needs

Smaller companies starting to automate/integrate Software providers more focused on bank integration for

payables and receivables

Less demand on IT Resources required

Time to benefit doesn’t have to be measured in “months”

25

Automate Automate Integrate Integrate ElectronifyElectronify


Glossary

ARC – Accounts Receivables Conversion

BCP – Business Continuity Plan

BOC – Back Office Conversion

BSP – Banking Service Provider

EBPP – Electronic Bill Payment and Presentment

NOC – Notification of Change

NSF – Non Sufficient Funds

OBP – Online Bill Payment

OTC – Over the Counter


Pathway to Electronic Receivables


ACH Direct Debit

1

OBP2

3 ACH Credit

Payment via your website

4

Image Based Deposit6

Lockbox with Conversion

5

Distribution of How Consumers Pay Bills


Source: Javelin Strategy and Research – 2009 Online Banking and Bill Payment Forecast

current payment trends – cmta a focus on working capital and expense reduction

Documents

wells fargo bank

member fdic

keyed data posting file

company site remittance

andor keyed

payment typesinformation

credit card cost

provider remittance