In the last 12 months, we have seen unprecedented amounts of changes to bank fee reporting due to bank mergers, system upgrades, bank fee rationalization projects, and the new AFP2020 Service Code rollout.

How do you prepare your billing systems to manage these changes to your pricing agreements and confirm their impact on your bottom line? Depending on your vendor, this responsibility may fall on you. Watch our webinar hosted by our experts Bridget Meyer and Dave Strand to find out if your software is ready.

In preparation for our upcoming webinar on Thursday, June 9th, 2022, we decided to dig into the Redbridge archives and highlight articles relevant to the topic of bank fee monitoring.

Bankers, If You Can’t Produce a BSB, You Are Late

We have reached the tipping point in bank billing transparency globally, and it is exciting. The vision of creating a global standard for bank fee reporting started with a few individuals willing to do the work, a few large corporations willing to apply pressure, and a few global banks willing to be leaders in providing transparency to their customers.

Read File


The 5 Common Bank Billing Errors

Is your business grappling with excessive banking fees? Are they accurate or erroneous? An analysis of your bank billing statements can help you solve this dilemma. It is not uncommon for a banking institution to make errors that affect their customers. In January 2018, Wells Fargo double charged an unknown amount of consumers due to an internal processing error. Below we break down five of the common billing errors we see when helping our customers.

Read File


“We had an immediate return on investment on our bank fee monitoring software”, Frédéric Capraro – RTL Group”

Bank fee analysis continues to be an obstacle for treasurers. How can global companies leverage technological innovations to improve visibility of bank charges?

Read File


A Deep Dive Into the AFP 2020 Service Code Set Update

While the world was shutting down due to COVID-19, an AFP task force of 19 bankers, corporates, and software vendors embarked on a massive project, led by Redbridge, to update the AFP Service Codes©.

Read File


Digitalization is vital in the monitoring of bank fees

A software package’s ability to provide relevant analysis of cash management fees depends on the vendor’s knowledge about how each bank builds its account analysis statements, says Gaëlle Parquic, Associate Director at Redbridge Analytics.

Read File


No more hidden fees!

Watch the live demo of our expert, Dan Gill, presenting our bank fee monitoring software, HawkeyeBSB, to the four Treasury Dragons.

Read File


Upcoming Webinar

Thursday, June 9, 2022 at 11 AM EST

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In the last 12 months, we have seen unprecedented amounts of changes to bank fee reporting. Is your software ready? Hosts Bridget Meyer & Dave Strand, CTP will cover how to best prepare your billing systems in order to manage these changes and stay up to date.

Banks and credit card companies sparred with consumer advocates and merchant representatives at a Senate hearing on interchange fees, the fees charged to merchants – and ultimately customers – for using credit cards. The hearing was led by Sen. Dick Durbin, Democrat of Illinois, with a panel of witnesses comprised of consumer advocates and executives from banks and credit card companies.

Among those testifying at the hearing, which was held on May 4, 2022, were Laura Karet, CEO of supermarket chain Giant Eagle, Bill Sheedy, a Senior Advisor at Visa, Linda Kirkpatrick, President of North America at MasterCard, Ed Mierzwinksi, Senior Director of the Consumer Program at U.S. PIRG, a consumer advocacy group, Charles Kim, Executive Vice President at Commerce Bancshares, and Doug Kantor, general counsel for the National Association of Convenience Stores.

Opening the hearing, Durbin noted that consumers have paid $794 billion in interchange fees, also known as swipe fees, since the last Senate hearing on the subject in 2006, when the Durbin amendment was passed, which limited retailer fees for debit card processing. Interchange fees, he said, are designed to avoid competitive market pressure. And “they’re a gravy train” for banks and credit card companies. “I strongly support having a disclosure on credit card statements that says how many swipe fees you’ve paid. Consumers don’t know what a swipe fee is, but they would (if there was a disclosure).”

According to Kim, banks and merchants should share in the cost of the system. Banks and credit unions invest billions of dollars into building and securing the payment system. “Merchants contribute by paying a small fee when they use the system to make a sale. That’s interchange,” he said. “Our nation needs to keep up when it comes to technology and security. Interchange fees are an investment in American commerce,” Kim said. This was refuted by Kantor, who noted that “Visa and MasterCard set the terms, which insulates those fees from competitive market pressures to keep them high.” While credit card companies invest some of the revenue in areas like security and fraud protection, they have significant discretion in setting the fees. “We need competition in this market. That’s the bottom line.”

Limit interchange fees

“Other countries limit interchange fees. What lessons can we learn from all of these countries that have decided that interchange fees are too high?” Durbin asked. “Well, those countries know that the credit card system is a market failure,” said Mierzwinksi. “Congress should strengthen the Durbin amendment and expand it to credit cards and lower interchange fees across the board.”

Sen. Chuck Grassley, Republican of Iowa, sought to clarify the relative market power of the major credit card companies. “Do Visa and MasterCard abuse their market power?” he asked. Sheedy responded: “No. Consumers are empowered to shop and merchants benefit.”
Added Kirkpatrick: “The payments system has never been more competitive.” As evidence, she cited the growing number of payment options, including cryptocurrencies, digital wallets and buy now, pay later.

A market system to discipline prices

Kantor countered, “This is not a balancing of the marketplace. There needs to be a market system to discipline prices and we don’t have that here.” Responding to the assertion by the credit card executives that innovation was a key element of interchange fees, he said, “The innovation in technology and payments does not make up for the lack of innovation and the antitrust problem in credit cards.” Karet added, “Every item in our store is individually negotiated. The price is not set unilaterally by the company. MasterCard and Visa are the only vendors we cannot negotiate with. It’s a take it or leave it proposition. I’m not an economist, so I can’t give you the definition of a duopoly, but if it walks like a duck and talks like a duck…”

Sen. Richard Blumenthal, Democrat of Connecticut, asked whether the fees charged by the credit card companies were passed on to consumers. Absolutely responded Kantor. “There’s 100% passthrough in every region of the country, so consumers pay these increases every single day.” Sen. Mike Lee, Republican of Utah, wanted to know if it is anticompetitive for Visa and MasterCard to tell all banks that they’re going to increase interchange fees for merchants. Sheedy said, “Visa sets the interchange fees on its own. We do it with input from the marketplace. The impact of the pandemic on merchants has been important to us. We lowered rates at the beginning of the pandemic. We are not raising rates. The average rate has been flat since 2015.”

The cartel behavior

Sen. Lee continued. “Does it amount to cartel behavior to agree on interchange fees?” he asked. Sheedy responded that “we feel it is highly competitive in that it delivers the same interchange fee to thousands of institutions. We feel the model works very well in a system where you need tens of thousands of institutions.” “For a network effect?” asked Sen. Lee.

“Yes, you need to have a default interchange fee,” Sheedy answered. Sen. Lee wanted to know what would happen to credit card rewards if the system changed. Kim responded that roughly 60% of interchange fees go out in the form of rewards. “And not just to the wealthy. It’s broadly distributed.” “So the banks would still get paid, but get paid less and the rewards programs would be a casualty?” “Yes,” said Kim. Sen. Chris Coons, Democrat of Delaware, noted that the issue isn’t just losing rewards programs, but losing access to credit. “How do issuing banks rely on interchange to offer credit services and what impact would it be if that revenue substantially declined for your bank,” he said.

Said Kim, “I think you’d see smaller banks just go away.” Kantor countered that “we haven’t found the parade of problems around the world that Mr. Kim and his brethren talk about. We haven’t asked for a cap on fee. We think there needs to be competition and market prices.” Sen. Grassley summed up by saying, “There’s a balancing act, and any future action should be carefully considered for (its) possible impact.”

The card brands – Visa, MasterCard, Discover and American Express – make changes to their interchange rates and fees twice a year, usually in April and October, and are generally non-negotiable. This article highlights the major changes introduced in April 2022. Unless otherwise noted, all of these changes are effective 4/22/2022.

Covid 19 resulted in an increase in online commerce and, for merchants, a significant switch in their card transaction structure from card present to card not present transactions.. However, during the past year, we have observed a slow but steady improvement in volume compared to the challenges we all experienced in 2020 and early to mid-2021. We have identified the major changes made to Visa, MasterCard, Discover and American Express’ rates and fees.

Payment card processing fees are broken down into three categories:

  • Interchange
  • Assessment
  • Fees

Interchange is paid directly to the issuing bank and are associated with a particular interchange category, depending on the criteria of the transaction. Visa and MasterCard publish their interchange rate tables online. American Express does not have interchange per se – they assess ‘discount rates,’ which essentially operate the same way as an interchange fee.

Visa

Visa fees vary based on a wide range of circumstances, such as card type (consumer or commercial), Merchant Category Code (MCC), transaction environment and more.

One of the changes that really stands out is to Visa’s Non-Qualified Consumer Credit interchange, which will increase from 2.70% + $0.10 to 3.15% + $0.10, an increase of 0.45%. Generally, merchant account providers apply Non-Qualified fees because the customer used a commercial card, foreign credit card or certain rewards cards. Additionally, the Non-Qualified rate may be applied to retail merchants that key-enter a transaction or fail to batch out at the end of the business day.

MasterCard

Regarding MasterCard, the highest rate increase we’ve observed is with their Standard interchange, increasing from 2.95% + $0.10 to 3.15% + $0.10, an increase of 0.20%. Standard rates are the highest rates that you can be assessed on a MasterCard transaction. Typically, standard rates are applied when the transaction does not match any of the basic qualifications, including but not limited to missing AVS data (Address Verification Service), not settling sales daily or failing to submit otherwise required data based on your merchant type.

MasterCard Enhanced Standard and World US Standard will also increase from 2.95% + $0.10 to 3.15% + $0.10. Conversely, High Value Standard and World Elite Standard will decrease from 3.25% + $0.10 to 3.15% + $0.10, a decrease of 0.10%.

Discover

Discover is one of the four major credit networks and is unique compared to other card networks. Rather than issuing cards through a third-party bank, Discover issues cards direct to consumers and commercial entities. Their interchange fees are not split between the card network and issuing bank; Discover fills both roles. Discover is therefore paid directly through the merchants credit card processor for each transaction.

The change that really caught our attention is the increase to their Commercial Electronic Prepaid interchange which is increasing from 2.30% + $0.10 to 2.65% + $0.15, an increase of 0.35% +$0.05.

Discover will introduce a new Charity US Consumer Interchange Program, MCC 8398. Both card-present and card-not-present transactions are eligible for this program, and the rates are as follows:

American Express

American Express also issues cards direct to consumers and commercial entities. Unlike Visa or MasterCard, American Express credit card processing is not straightforward. Visa and MasterCard are both open credit card networks, meaning any financial institution can issue these cards. But American Express is a closed network, which gives them much more control over payment card merchant fees.

American Express is introducing a new Debit Card Program, which includes Unregulated and Regulated Consumer and Small Business Debit Products. Unregulated transactions are subject to the OptBlue Assessment, OptBlue Card Not Present, OptBlue App Initiated Tran and OptBlue International Fees. Transactions from these new products will attract the Debit Rates and Transaction Fees, as shown below:

2022 card transaction fees

American Express is introducing an OptBlue Acquirer Assessment and Transaction Fee of $0.165% + $0.02, effective 4/22/2022. This fee is applied to all American Express non-debit card charges (credit and prepaid), not credits/refunds, submitted under the Program for all industries in the American Express Program Pricing Signing Guidelines.

While the last few years have created significant changes in the treasury landscape with a rapid push towards digitalization (e.g. the resurgence of the QR code), the pace of change within the depository environment is better described as a slow and steady march.

Treasury environments are slowly evolving

Depending on the types of deposits your company is making, there may be some space for change, but most of our depository clients are not seeing the same kind of digital revolution we see elsewhere in corporate treasury.

Treasurers around the globe are trying to push for electronic payments because they are faster, cheaper, and easier than cash and card payments. With this new shift, where does that leave retailers who deal with cash and coin deposits, or whose clientele still wants to write checks? While there are some alternatives to branch deposits out there, there is nothing disruptive in the market right now that would allow treasurers to radically change how they accept deposits. When we cannot count on digital disruption to reduce costs, optimization and a clear understanding of the options on the market today are the best way for treasurers to improve their bottom line.

One of the most consistent things Redbridge sees with our international retail clients is a strong reliance on armored couriers and, in nearly equal measure, dissatisfaction with their couriers. While talking with one retail client recently, their Assistant Treasurer told us how a lack of transparency in armored courier fees and a complicated workflow for depositing into their smart safe pushed them to explore other depository providers. Couriers would show up late, stay longer than anticipated, or show up on the wrong day and our client would get hit with the fees on their account analysis statement with no explanation of why the fees varied month to month.

Shifting depository strategies

So where does that leave the retailer with cash and coin to deposit who is in a position to move away from their current armored courier? With banks in the US closing 5% of branches between 2017 and 2020 and the UK shuttering over 4,000 bank and building society branches in the last 6 years, companies around the world are coming to the same conclusion: going back to branch depository will not work.

bank branches chart

Thankfully, though, there are some interesting options in the market that we see clients using with great success. For example, the retailer mentioned earlier opted to start making deposits with DTS Connex, a US provider with online cash management tools designed to work with any bank, courier, treasury, or ERP system. They are still storing cash onsite in a safe and waiting for a pickup, but a clear, easy-to-use bank agnostic deposit prep website and straightforward transparent pricing made the switch an easy decision. Another major retail client used DTS’s deposit-by-mail service for stores without a bank branch nearby.

For the retailer that receives a large amount of coins and doesn’t use a cash recycler, some stores have gotten even more creative. After all, it is hard to check out at the grocery store without seeing a box collecting coins for charity. Reduced coin deposits, a tax write-off at the end of the year, and social good? A win-win-win for those who use this strategy.

Globally, armored couriers can sometimes be the best option, especially in smaller or more remote countries. For those clients it may be best to reduce the number of pickups and work to negotiate a more transparent fee model with your courier and try to receive invoices you can review (and possibly challenge) instead of having the charges lumped into your bank fees.

Embracing in digitization

Your depository business is not only cash and coin, and luckily, there are a few more options out there for non-cash, non-electronic payments. For our US clients who rely on lockboxes but who would like to shift to a digital alternative, eLockboxes can use AI and machine learning to reduce the number of exceptions and drive down costs. In the US and EMEA we are seeing a proliferation of apps that enable agents in the field to automatically scan checks or take electronic payments, where they previously would have had to take cash or check. With these apps, as long as cellular data is available, payments can be deposited before the agent leaves the premises. Additionally, as your check scanner ages and needs to be replaced, a smart phone and an app may be a more cost-effective solution. These alternatives have the additional benefit of being a bit greener than traditional methods, allowing treasurers to enhance the services they are using while being able to contribute to a greener, less paper-dependent future.

The biggest trend we are seeing with our clients in the depository space, and the biggest trend we have seen in general, is a shift towards bank-agnostic providers to take over the business that banks are increasingly trying to move away from. While this does shift responsibility back onto clients to source providers and do some of the preparation and reconciliation they used to rely on the banks for, what they get is a more agile environment where changing banks doesn’t mean changing processes or system integrations. What once could have ballooned into a months-long project can be done with a few keystrokes on the back end of a third party system.

Innovation in LATAM

When we really try to look ahead to see what could be in store for our depository clients, we are looking at LATAM. While much of the world has spent the last two years figuring out the most efficient way to take contactless payment, LATAM had already leapt ahead and found a way to accept cash payments online. Customers can make their purchase via OXXO in Mexico, Boleto in Brazil, or Baloto in Colombia and then go to a centralized location to scan the bar code and pay for it with cash. Retailers and utility companies especially, we are curious – would you embrace this kind of change?

 

Constance Veron, Frederic Vincendon, & Sarah Gundle

A special report on the cash management & payment trends that will transform your treasury department in 2022

The growth and vitality of the payments industry has fascinated all observers during the past two years of the pandemic. Now with recent geopolitical developments arising from the Russia-Ukraine conflict, it is being tested again.

Our new publication analyzes the most prevalent trends and innovations in the treasury world today.

Included in this publication:

  • The Global Resurgence of QR Codes
  • Choosing the Right Payment Terminal in an Ever-Changing Environment
  • The Rise of Buy Now, Pay Later
  • PCI Compliance in an E-Commerce World
  • Where Do Banks Stand in the Race for Digital?
  • Virtual Accounts, Which Companies Should Implement Them?
  • The Future & Alternatives to SWIFT GPI
  • Global Digitization in the Depository Space
  • “Switching Banks Was the Right Decision”: An Interview with Olivier Bouillaud from Albéa

Download the full publication

In March, Tom Hunt, Director of Treasury Services at the Association of Financial Professionals (AFP) hosted a webinar about determining the true cost of payments. He was joined by Mark Penserini (Corpay), David Deranek (Health Care Service Corporation) and Bridget Meyer (Redbridge).

As the webinar made clear, there are now many different types of payment methods available to consumers and businesses, from traditional checks and ACH payments to electronic and digital options. While each method has its benefits, they also have associated costs. Determining the true cost of each payment method is important for companies to understand their financial impact.

Deranek says his organization uses a “combination of bank fee software, our treasury management system and something we call our ‘tier database.’ We’re really putting a lot of effort into it.” He says the company is conducting a modernization project because “we can’t do it manually. It’s just too overwhelming.”

A survey by AFP of cost awareness shows that most organizations are either aware or extremely aware of the costs associated with payments, depending on the type of payment. For example, 40% of survey respondents indicated that they are aware of the costs of checks, while 45% said they were extremely aware of these costs. So there is a high level of awareness of the costs. But how can organizations effectively calculate such costs?

Choosing a model for determining payment costs

Meyer offers some advice on how companies can calculate the true cost of different payment methods. The initial step is to isolate all charges related to the payment type, including those hiding in other product families.

“The first challenge to any project is the accessibility of data,” she says. “You need to understand if you’re going to be building this for a single bank or all of your banks. It’s not as simple as just looking at a PDF statement.”

Bank statements can also lack transparency. “Banks can add additional charges in the general account services section for credit and debit postings. You have to decide how accurate you want to make your model for determining payment costs.”

After the data for the model has been gathered, all one-time setup fees need to be removed. For Meyer, this approach to cost analysis is like a “jigsaw puzzle” because it involves assembling and putting together the various pieces. “Are we going to keep or remove all hard charges, exceptions, reporting, etc. Or are we taking them out and just focus on core processing charges? That’s going to be activity-based charges. It’s a big decision.”

Once this step is done, payments and collections need to be separated. “It may seem obvious, but it’s not that simple,” says Meyer.

After the data has been gathered and the decisions regarding modeling have been determined, it’s time to think about the divisor. As Meyer notes, “You can’t just take all of these line items that you’ve isolated on your analysis statement and add the volumes.” Instead, you need to isolate specific trigger volumes of line items to avoid duplication.

One service line does not tell the whole story. Including other items like ancillary costs, fraud charges and maintenance fees, for example, is very important. Meyer says the key question to ask is, “If I were to completely change from ACH to RTP transactions tomorrow, which services would go away?” Any services that would not disappear should be included in the model.

How AFP codes help

AFP codes allow organizations to sort data by product so they can easily identify the various charges on their statements. Each has a designated product family in the product code structure. Assigning the correct AFP codes makes it possible to easily filter prices and volumes. However, it is also important not to double any volumes.

Meyer says that ACH payments can be the most difficult product family to calculate correctly. This is because in many cases, banks do not differentiate between debits and credits. There are additional fees for credit postings in general services. And significant maintenance charges can swing results.

A case study in determining payment costs

HCSC offers a case study in managing bank fees. The company is currently implementing a payment modernization project that involves standardizing data. As part of this effort, the treasury department is trying to create a new foundation for evaluating both the company’s payment cost and its overall cost in bank fees.

“We know our business is swimming in data and we need to make sure that we’re in a position to use that data to make more informed decisions for the profitability of our business,” says Deranek.

The future is digital

One of the company’s main focuses is moving more payments to a digital format. “Obviously, you want to be more digital in your payments, but there are still those aspects where you’re doing checks. You can’t get away from it. It’s a slow process to convert it,” says Deranek.
According to the AFP survey, about 73% of responding organizations are currently moving B2B payments away from paper checks to electronic payments. The primary reasons for this shift are fraud prevention, reduced costs and increased efficiency.

While there may be some pain points when adopting automated payment solutions – including a lack of IT resources, existing supplier relationships (which would require a major effort to update) and multiple workflows – doing so can lead to operational efficiencies and make determining the true cost of payments easier.

Understanding costs propels the future

Understanding your true cost of payments is not an easy task. There are a number of factors involved, and considerable time and effort is required. However, taking the time to determine your true cost of payments will allow you to make informed decisions, build bridges across all departments and better prepare for the future.


Upcoming Webinar

Thursday, June 9, 2022 at 11 AM EST

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In the last 12 months, we have seen unprecedented amounts of changes to bank fee reporting. Is your software ready? Hosts Bridget Meyer & Dave Strand, CTP will cover how to best prepare your billing systems in order to manage these changes and stay up to date.

“Buy Now, Pay Later”, or BNPL, is not a new concept, but it has gained more popularity now than ever before. Gabriel Lucas and Hector Galvan, from Redbridge, discuss the benefits, the drawbacks and the future of deferred payments from a retailer’s perspective.

What is ‘Buy now, pay later’?

BNPL is a service offered by various companies that allow consumers to online shop and divide purchases into multiple equal payment options.

Typically, the first installment is due at purchase, but most BNPL providers allow customers to pay in a weekly, bi-weekly, or monthly installment. This allows consumers to receive their purchase right away, while giving a flexible alternative to credit cards.

In the U.S. and across the globe, companies like Klarna, Sezzle, and Afterpay have dominated the BNPL landscape partnering up with large scale retailers like Walmart, Target, and Amazon to offer their services.

Key players in the BNPL field

Recently flooded with new players, only a few major players have dominated in the past year. These include: Afterpay, Affirm, Klarna, Zip (previously QuadPay), Sezzle, and now PayPal’s ‘Pay in 4’.

BNPL key players chart

What are the benefits of retailers offering BNPL services?

Not only does BNPL offer consumers the benefit of financial flexibility and increasing purchasing power while making purchases online, but retailers offering this service have also seen significant benefits this past year. As Forbes notes, an estimated $99.4 billion in retail purchases will be made by consumers using BNPL programs in 2021, this is up from $24 billion made in 2020.

Many retailers currently offering BNPL payment options see similar benefits at the end of the day:

1. Lowering cart abandonment and sticker shock

Sticker shock is one of the main reasons consumers abandon their carts. The reality is, for large-ticket items in particular, many consumers simply cannot afford to spend a large sum of money in one transaction. This is where BNPL options provide some relief for consumers.

2. Increase sales and average order value

Retailers know the impact of abandoned carts have on the overall bottom line. This is why it is important to take measures to limit the number of abandoned carts in order to convert these customers.

Businesses who offer and prominently message alternative payment methods, like BNPL, to consumers see the immediate benefit: the BORN Group notes an increase in average order value of more than 30%, meaning that installment payments encourage larger basket sizes and higher-priced sales.

3. Building a larger consumer base

By providing additional, more flexible payment options, retailers – and truly any merchant – have the ability to expand their consumer base to a wider range of demographics. A BNPL option might attract customers who were previously hesitant to buy products because the price was out of their budget.

4. All while still receiving the Full upfront payment

With third-party BNPL providers, businesses don’t have to be wary of the potential risks of managing fraud cases, non-payment, or other related issues. BNPL providers will manage the automated billing, repayment, and fraud cases.

Why BNPL might not be the best solution for all retailers and consumers?

Although offering BNPL solutions can offer a variety of benefits for retailers and consumers, the merchants themselves pay the price for this consumer-friendly financing alternative. Buy Now Pay Later firms charge retailers significantly more than traditional card acceptance.

BNPL players charge consumers’ cards, or bank accounts, themselves, rather than the retailer, and pass on the cost as part of a bundled fee to retailers for different services provided.

According to Tom Richardson, of Financial Review, a typical Visa processing fee in the US is 3%, he says. A BNPL provider, like Sezzle for example, charges retailers fees around 6% plus 30 cents per transaction, with the pitch that this includes the 3% card fee. In most cases though, a 3% processing fee may be well above the actual cost of acquisition. The rate that BNPL companies charge retailers depend on different factors:

  • Type of product or service
  • Length of time the store has been in business
  • What item is purchased

On the consumer end, BNPL can prove to become a slippery slope for a segment of users. BNPL services are often criticized for encouraging consumers to take on debt they might not be able afford.

In addition to these concerns, the BNPL payment option does come at a hefty price. One downside can be from missing scheduled payments that can result in late fees of up to 25% of the past-due amount, depending on the provider you use. Consumers may also mistake that the merchant assess the late fees, potentially damaging their reputation.

Additionally, if you don’t repay the balance amount in due time, you can be reported to the credit bureaus as delinquent.

Regulatory issues

The staggering growth of the Buy Now Pay Later industry is expected to attract the attention of financial regulators. Right now, “buy now, pay later” is not regulated in the way that credit cards are.

In the U.S., BNPL services are covered under the Dodd-Frank Act, which are enforced by the Consumer Financial Protection Bureau, but the federal “Truth in Lending Act” doesn’t apply to many BNPL provider services offered because it only covers credit products that involve at least five payments. This is why the ‘Pay in 4’ model has become so popular across most of the BNPL providers. That means there are no standards for disclosures on fees, amounts owed, credit reporting and payments.

California’s regulators are among the few U.S. watchdogs that have taken substantive actions against the services. Even though most “pay-in-four” products are exempt from those federal rules, California has classified some pay-later products as loans.

The future for BNPL

With COVID-19, there has been a shift in retail shopping and created a new normal. More and more consumers are more apt to making purchases online. According to IBIS World, industry revenue is forecasted to grow at an annualized 9.8% over five years through 2024-25, to $1.1 billion.

This industry expansion and growth has led other non-BNPL specialized fin-tech companies and providers, like PayPay, to offer similar ‘Pay in 4’ services. As a payment gateway service that most merchants already offer, PayPal clearly has, despite its late entrance into the game, a natural advantage.

In late September, Mastercard announced their first step towards offering a BNPL program in the U.S., Australia, and the UK. Their program announced is called “Mastercard Installments,” which allows Mastercard to act as a middle man by enabling banks and fintechs to utilize this installment program to offer loans directly.

Citibank, American Express, JPMorgan Chase, and Goldman Sachs (in partnership with Apple) have also announced future plans to offer ‘post-transaction’ financing options at much more affordable fees.

As we continue to see the growth of BNPL in the retail industry, we will see the expansion of major players in the merchant card and banking industry make a late but large wave in this future trend.

 

Hector Galvan & Gabriel Lucas


A special report on the cash management & payment trends that will transform your treasury department in 2022

The growth and vitality of the payments industry has fascinated all observers during the past two years of the pandemic. Now with recent geopolitical developments arising from the Russia-Ukraine conflict, it is being tested again.

Our new publication analyzes the most prevalent trends and innovations in the treasury world today.

Included in this publication:

  • The Global Resurgence of QR Codes
  • Choosing the Right Payment Terminal in an Ever-Changing Environment
  • The Rise of Buy Now, Pay Later
  • PCI Compliance in an E-Commerce World
  • Where Do Banks Stand in the Race for Digital?
  • Virtual Accounts, Which Companies Should Implement Them?
  • The Future & Alternatives to SWIFT GPI
  • Global Digitization in the Depository Space
  • “Switching Banks Was the Right Decision”: An Interview with Olivier Bouillaud from Albéa

Download the full publication

Buy now, pay later is becoming an increasingly popular payment channel for merchants and consumers alike. As the name suggests, buy now, pay later transactions allow consumers to purchase an item and pay for it later, usually in a series of installments. While this payment channel is growing in both popularity and acceptance, there are still some questions merchants need to ask before setting up such a program of their own.

At the MAG mid-year conference earlier this February, a panel of key stakeholders in the payments ecosystem gathered to discuss the latest in payments technology. Here are the practical insights from panelists at Nordstrom, Elavon, MasterCard, and Redbridge.

Angie Grunte, Managing Director at Redbridge says, “Having a well-established yet flexible payment strategy is key to being able to effectively adopt new payment types and methods. However you must first determine which options will truly create the best experience for your customers and value for the organization.”

“For us, it came down to looking at what platforms were available,” says Daniel Crisologo, Director of Payments at Nordstrom. “There were a lot of criteria that we needed to look at.” These criteria included the number of new customers coming into the sales funnel, a virtual card versus API integration and the cost differential compared to the ease of use for the consumer. “At Nordstrom, we always focus on the user experience first,” says Crisologo. “Obviously, cost is a factor, but the user experience is paramount.”

Joe Myers, President, Elavon North America, a global payment processor, notes that there several critical points for merchants to consider. “The integration path, how it all comes together. The experience for consumers and how easy it is for them to adopt and use.” Ultimately, he notes, it’s about expanding the options for consumers to be able to purchase goods, either in-store or online.

Referring to his company’s involvement with acquirers and merchants, Pablo Cohan, Senior Vice President of Digital Solutions at MasterCard, says, “There are a lot of options out there, so we need to take a step back and understand the (merchant’s) pain points.” He notes that MasterCard is focused on giving lenders the ability to attract consumers to the platform and providing those consumers with purchasing power.

What to consider during implementation

There can be challenges during the implementation of any new channel and this is also true for buy now, pay later.

Nordstrom’s Crisologo, noting the biggest challenges the retailer faced during the implementation of its buy now, pay later program, says “Having an effective testing platform is important. As is understanding the success metrics and making sure you can measure these effectively.”

In addition to metrics, there is also the question of the type of implementation. Says Crisologo: “You have to decide whether you want quick and easy, which is a virtual card and API integration, or a hybrid of the two.” Whatever type of implementation a merchant chooses, it is important to try the product before using them. “If I had the opportunity to go back, I would use the product a lot more to make sure some of the gaps in servicing were resolved.” Another important aspect to consider is the amount of time for integration. How long will it take for the program to be up and running so the merchant can take advantage of the channel? In Crisologo’s experience, it doesn’t necessarily have to be that long. “They’re very good at rolling these out. It’s literally a tap and go transaction. It’s super easy.”

There is significant involvement from all key players during the implementation phase. MasterCard’s Cohan notes that his company is “very involved” with its acquirers and merchants during the implementation phase. “We’re highly engaged to make sure everyone’s ready for that first transaction to work without a problem. This is a turnkey solution with a low investment and if it drives volume and value, then great.”

Following up: data and privacy are paramount

The evaluation of the program doesn’t stop once it has been implemented, though. There may be some difficult situations that arise for merchants and consumers. This includes fallout, for example. Myers notes that this can be a problem: “If there’s a consumer in the store looking to get approval and expecting to get approved and they don’t, that causes frustration.”

While there may be some difficulties, for merchants like Nordstrom, the benefits clearly outweigh any negative factors. Notes Myers, “Giving that choice across payment methods and driving activity and, ultimately, sales and revenue” are some of the key benefits. Nordstrom’s Crisologo agrees: “We want our customers to be able to choose the platform that they use.” And the company has seen significant growth in customer acquisition and incremental sales as a result. Once the channel has been implemented, it needs to be tracked and measured. And that requires a basic infrastructure to gauge the success of the program. “Data is 100% a key part of that,” says Crisologo. “You want to be able quickly learn and evolve.”

As with everything, privacy is also a major concern. The data that is generated needs “to be used only for the purpose for which it is intended,” as Cohan says. “Anything else without consumer consent is not okay.” Merchants need to spend a lot of time talking with their legal and security teams about this topic. Merchants also need to think about the breakeven point for accepting buy now, pay later transactions to make sure it’s a sustainable channel in the long term. “Where incrementality is helping to offset the costs, when does the funnel dry out?” asks Crisologo.

An evolving channel – with lots of promise

What is the future of buy now, pay later? How will it evolve? While there are still questions about how buy now, pay later will change over time, the channel is off to a good start, with acceptance among both consumers and merchants increasing and transaction volumes rising.

Redbridge’s Grunte remarks that “As the buy now, pay later space continues to evolve, it is important to be selective in choosing the right partners and being prepared to deal with dynamic changes as the market continues to develop and face regulatory scrutiny.”

Almost eight in ten MT 103 cross-border payment messages are now sent via GPI, making Swift’s initiative to improve the level of banks’ services in cross border payments a great success. However, will the rise of new technologies such as blockchain and cryptocurrency now challenge Swift’s dominance in the cross border payments field?

Before and after GPI

Cross-border payments are renowned for their pain points, hidden costs and opacity. Historically, neither the sender nor the beneficiary had any details on the location or date of arrival for payments. As a response to these issues, SWIFT introduced a new and improved service, SWIFT Global Payments Innovation (GPI) in 2016 and has continued to make improvements to this service over the years. SWIFT gpi is based on a multilateral Service Level Agreement (SLA) across banks to implement common processing standards that improve speed, transparency, and tracking mechanisms of international payments.

Since its launch, adoption has been slow but steady. Today, 78% of all cross border MT103 messages are now being sent via gpi, this equates to nearly $438 billion daily. Including both financial institutions and corporates, there are over 1,800 live gpi clients. According to Kalyani Bhatia, SWIFT’s Global Head of Payments, banks and corporates are seeing the benefits of using gpi. She explains that banks are seeing less inquiries and investigations since clients have access to real-time information, saving client’s time and money. Additionally, cross-border payments through gpi are considerably faster than before. Around 44% of payments are credited within five minutes, 70% under 30 minutes, and nearly 100% under 24 hours.

SWIFT GPI before and after chart Source | iBanFirst

The GPI initiative

Overall, SWIFT has three main goals with GPI:

  1. Empowering customers and smaller banks
  2. Modernizing and digitizing global payments to meet new standards
  3. Accelerating embedded finance

In order to achieve these goals, banks and other financial institutions have invested a significant amount of time and resources on improving and adopting SWIFT gpi. A complete list of banks that are members of the SWIFT gpi community are included here. According to a major American bank, SWIFT gpi can be leveraged in different solutions. The bank does this by offering multiple gpi solutions to its customers. First, clients can use online banking module to visually track and trace outgoing payments in real-time and see any charges that have been deducted along the way. In addition the bank offers an online portal which is publicly accessible. Clients can leverage this tool by providing a URL to their payees who can then keep track of the payments made to them in real time. The bank also provides solutions enabling clients to integrate gpi data with their TMS or ERP systems through APIs. Using these APIs clients can integrate outgoing and incoming transactions enabling optimized use of intraday liquidity and forecasts.

Advantages

According to a global firm in the commodities industry, the main advantage of SWIFT gpi is traceability. Users can now track and trace international payments through a unique tracking number called a UETR (unique end-to-end transaction reference). In North America, clients can choose their own UETR. This new functionality is very important because before gpi, each bank had the ability to change the tracking number throughout the process, making it very difficult for clients to track payments. The tracking number enables users to check the status of payments as well as the fees paid each step of the way. The latter is a key advantage for this firm as they are now able to tell their beneficiaries the status of payment, which contributes to building stronger partnerships with suppliers and avoid long and costly investigations. Additionally, transactions that go through gpi are significantly faster, which enables liquidity efficiencies. Transactions that used to take days now take a matter of minutes for most companies.

Drawbacks

However, corporates still encounter issues with gpi. SWIFT gpi’s capabilities can vary from bank to bank. While larger banks offer gpi data with a considerably high level of detail, this is not always the case for medium-to-smaller banks. For instance, while some banks allow their clients to access SWIFT gpi’s tracking system directly through their internet portals or APIs, others require corporates to pass through the bank’s customer service. Overall, corporates need to keep pushing their financial partners to adopt the latest services available to fully benefit from SWIFT gpi’s advantages.

Future of GPI & alternatives to SWIFT GPI

The rise of new technologies such as blockchain and crypto currencies is now challenging SWIFT’s dominance on the cross-border payment industry. Several fintechs are developing innovative solutions that intend to improve the services offered by the rigid traditional players in the financial industry. One that stands out on the cross-payment market is Ripple. Branded as the “internet of value”, Ripple is a global decentralized network that connects payment providers around the globe. Ripple promises to solve most of the issues related to cross-border payments such as payment speed, fees, and transparency. This is achieved by the use of a decentralized consensus model in which a set of computers determine which transactions sent by the network are valid. In addition, Ripple’s cryptocurrency, XPR, uses the power of the blockchain to confirm transactions in seconds with a very small cost. Below is a step-by-step guide to transactions on the Ripple network.

Ripple & SWIFT GPI chart

Their three main products, xCurrent, xRapid, and xVia enable members of the Ripple network to process real-time payments, lower the costs of processing and settlement, and minimize liquidity costs. Over one hundred banks and other financial institutions, such as Santander Bank, American Express, and MoneyGram, have joined the Ripple Network. The table below summarizes and compares the Ripple Network and SWIFT gpi.

SWIFT and Ripple graphic Source | Ripple

Updates and Improvements

SWIFT and its members are constantly listening to the marketplace in order to make updates and improvements to current and new gpi features. Two other gpi products that SWIFT offers are Pre-validation and SWIFT Go. The pre-validation feature enables the sender to validate the beneficiary’s account prior to sending the payment. This enables the payment process to be faster and smoother allowing financial institutions to catch problem areas at the beginning, 75 banks have already signed up for this service. SWIFT Go specifically targets consumer low value retail payments. The normal SWIFT gpi SLA is 24 hours, for SWIFT Go they have reduced the SLA to four hours. Ten customers are live on this service and 100 more are in the implementation process.

SWIFT is updating the gpi platform in November 2022 with features to bring ISO20022 to all of its members. By 2025 all financial institutions have to switch from MT messages to ISO. SWIFT understands that all banks will transition at different times and the new platform will allow its members to switch at their own pace. The ISO format provides more information than MT messages and SWIFT wants to ensure corporates do not lose any valuable information during this transition to ISO. To do so, the new SWIFT platform will keep all of the information along the payment process on its own platform to ensure the integrity and security of data.

SWIFT is still the principal network used for cross-border payments, with over $100 trillion USD being transferred through the SWIFT gpi network. A considerable number of financial institutions and corporates across the globe have adopted the SWIFT network and several of their underlying products such as SWIFT gpi. However, an increasing number of new solutions for B2B cross-border payments are being developed. When making cross-border transactions, corporates should seek to understand and evaluate their options, taking into account the pros and cons of each solution.

 

Ashley Krause & Pedro Hernandez


A special report on the cash management & payment trends that will transform your treasury department in 2022

The growth and vitality of the payments industry has fascinated all observers during the past two years of the pandemic. Now with recent geopolitical developments arising from the Russia-Ukraine conflict, it is being tested again.

Our new publication analyzes the most prevalent trends and innovations in the treasury world today.

Included in this publication:

  • The Global Resurgence of QR Codes
  • Choosing the Right Payment Terminal in an Ever-Changing Environment
  • The Rise of Buy Now, Pay Later
  • PCI Compliance in an E-Commerce World
  • Where Do Banks Stand in the Race for Digital?
  • Virtual Accounts, Which Companies Should Implement Them?
  • The Future & Alternatives to SWIFT GPI
  • Global Digitization in the Depository Space
  • “Switching Banks Was the Right Decision”: An Interview with Olivier Bouillaud from Albéa

Download the full publication

Although the COVID-19 has strengthened e-commerce sales, which already experience meaningful year-over-year growth, brick and mortar retail continues to maintain relevance. According to the U.S. Department of Commerce statistics, E-commerce increased 6.8% in Q3 2021 while offline sales grew 11.5% in Q3.

Brick and mortar retail proves to be resilient

With the in-store shopping experience evolving and more blossoming years ahead, payment terminals and their capabilities are also evolving; however, payment terminal selection and management tend to be overlooked by many treasurers – especially in the USA, where acquirers remain the primary distributors. Yet, treasurers and other key stakeholders need to consider terminals and their broader functionalities as part of their payment strategy. This is especially important as terminal technology and its touch on the customer continue to evolve.

Trends to consider when choosing a payment terminal

New Consumer Behaviors

The pandemic has caused a great disruption in the way people do things. It changed the way people work with work-from-home, most countries and cities had lockdowns. It is not surprising that it also shifted consumer behaviors. One form of behavior change is how consumers make payment. Contactless payments defined as the ability to pay by tapping a physical card, wearable, or smartphone enabled by RFID or NFC technologies over a card reader, it was already on the verge of widespread global adoption. However, usage accelerated quickly due to the pandemic since safety was a key driver of payment adoption in 2020. However, convenience and simplicity will continue to drive further consumer acceptance in 2021.
Around the world, consumers are choosing to shop with businesses that offer contactless at the point of sale. “Contactless payments have become a driving differentiator: If all other factors were equal (price, selection and location), nearly two-thirds (63%) of consumers would switch to a new business that installed contactless payment options,” according to The Visa Back to Business Study.

In the US, American Express found that 70% of merchants reported customers are requesting the option of contactless tap-and-go or mobile app payments. Cashless payments adoption in Asia Pacific has also been on the rise as it is growing 2.5x faster in the region.

According to a 2020 survey by Visa Inc., the adoption rate of cashless in Singapore accounted for 98%, followed by Malaysia (96%), Indonesia (93%), Vietnam (89%), Philippines (89%), and Thailand (87%).

Terminal percentages

The use of debit and credit cards in point-of-sale payments is also a factor that is driving the need for POS terminals. Worldpay, in 2020, digital or mobile wallets accounted for the largest share of point-of-sale payment methods in the Asia-Pacific region, with over 40% of payments. This was followed by card payments (debit and credit), which accounted for 33.6% of the payments, and cash (19.2%).

Other trends that have been on the uptick since the start of the pandemic that will continue to grow are curbside pickup, virtual consults, social commerce (social media marketplace). These trends will drive businesses to change or update their POS payment terminal rapidly. The need for the terminals to be able to accept contactless payments whether it is card or mobile is crucial. Terminals should also be more mobile, accessible and the software needs to be seamless and secure.

A focus on the Android ecosystem

Allowing the Android ecosystem on to the payment terminal unlocks all sorts of new possibilities. Acquirers and value-added providers can develop their own applications, bringing new ideas to banks and acquirers. Front-office apps could be in the form of store applications, loyalty, click & collect and ticketing. Back-office apps can deliver reporting, staff management and much more. This will help banks and acquirers to improve their customer retention. With devices being able to do more, depending on the context, it might reduce the need for multiple devices in store. Another important point is the ability to accept alternative payment methods, leveraging extended device capabilities, such as cameras, scanning and NFC. Android also unlocks the ability to port new applications, including QR codes and digital wallets – on top of traditional payment methods.

Merchants are receiving more and more mobile terminals with SIM cards. A smartPOS based on Android offers more than the legacy portable terminals and mPos dongles. The shortage of semiconductor and other components might slow the manufacturing of these terminals since they are used in almost all electronic devices.

A focus on new pos devices

Many new devices have launched recently from updates to the traditional fixed kiosks to more innovative mobile solutions. Samsung Electronics released the Samsung Kiosk, an all-in-one solution that offers contactless ordering and payment capabilities in June 2021. Providing customers with easy install options and a protective coating, the Kiosk is now available in 12 countries worldwide, including the United States, Canada, the United Kingdom, Ireland, France, Sweden, the Netherlands, Belgium, Spain, Austria, Australia, and Singapore.

Samsung Kiosks

Samsung Kiosks (Source | Samsung)

PAX Technology announced the European launch of the M30 & M50 Android PayPhones in September 2021. The M-series PayPhones are the first ever smartphones with inbuilt point of sale technology. It combines the benefits of a secure EMV & PCI 6 certified payment terminal within an Android smartphone ecosystem. These new devices bring an interesting proposition for acquiring banks and payment service providers looking to better partnerships with telecoms or to provide an additional new option to merchants. These devices enable companies and entrepreneurs to operate an E-Commerce business on the run. All major global payment methods can be accepted.

Pax m50

PAX MSO (Source | PAX Technology)

Features to consider when choosing a payment terminal

Different models of terminals for different use cases

Sales depend on the means of payment, what a merchant can accept in store heavily depends on the hardware they have in store. Merchants can enhance customer experience (hence boosting their sales) by selecting a terminal relevant to their activity and client profile. There are a few key features to keep in mind when selecting the right payment terminal including the trends listed.

Some industries require their vendors or employees to move around the store/station/restaurant/etc. and to be able to accept payment at any moment anywhere on the premises. In this case, a mobile terminal or mPOS (i.e. a credit card reader attached to a smartphone or tablet) would be relevant.

Connectivity

The main connections available are Wi-Fi, Bluetooth, Telephone line, Ethernet, and GPRS/4G and there is no one-size-fits-all solution. However, the safest option would be to choose combine connections to prevent any interruptions at the checkout. For example, a fixed terminal connected to Ethernet with a SIM card to have a 4G Back-up.

Standalone vs integrated

Standalone terminals do not connect to the electronic cash register (ECR), requiring the cashier to manually key payment amounts into the terminal. On the other hand, integrated terminals automate this process offering a faster checkout while reducing the risk of human error. While advantages of integrated solution are obvious, it usually costs a lot more and installing it might take longer.
When it comes to integration, you can choose to fully or semi-integrate your terminals. In the first option, card data is going back and forth from your terminal to your payment processor through your ECR. In this case, the merchant’s system must comply with higher PCI DSS requirements (because cardholder data are transiting through the merchant’s system). The second option is usually the preferred method, where the data goes directly to the processor for payment authorization (without passing through the merchant’s ECR), and allowing merchants to reduce their PCI DSS scope.

Software

Proprietary operating systems were the conventional choice for terminals. However, the trend is to shift to Android-powered terminals that allow merchants to run all kind of Android applications and to benefit from new functionalities.

Beside traditional VISA and MasterCard, Merchant can install many more payment applications such as local schemes, gift cards, DCC, contactless, etc.

Security

Security should be given great consideration when choosing a terminal. As devices become more interconnected, security threats could also come from different sources. Day to day business can be disrupted if a business was hacked.

2021 saw a large number of high-profile hacks like Colonial Pipeline, SolarWinds, Twitch, CNA and many more. While these headline hacks might not have been through POS terminals, POS devices remain a desirable target to cybercriminals.

Environmental impact

As ESG adoption and concern grows, more consideration is given to producing and disposing of these terminals and devices. Device producers could have sustainability as part of their goals when producing new terminals. The result might be a more eco-friendly terminal produced with recycled materials or super low power consumption. On the other side, disposal or recycling old terminals might prove to be more of a challenge, most of these devices are considered e-waste. Traditional waste management companies might not be equipped or able to dispose or recycle these items.

 

Samuel Tong & Pauline Lion


A special report on the cash management & payment trends that will transform your treasury department in 2022

The growth and vitality of the payments industry has fascinated all observers during the past two years of the pandemic. Now with recent geopolitical developments arising from the Russia-Ukraine conflict, it is being tested again.

Our new publication analyzes the most prevalent trends and innovations in the treasury world today.

Included in this publication:

  • The Global Resurgence of QR Codes
  • Choosing the Right Payment Terminal in an Ever-Changing Environment
  • The Rise of Buy Now, Pay Later
  • PCI Compliance in an E-Commerce World
  • Where Do Banks Stand in the Race for Digital?
  • Virtual Accounts, Which Companies Should Implement Them?
  • The Future & Alternatives to SWIFT GPI
  • Global Digitization in the Depository Space
  • “Switching Banks Was the Right Decision”: An Interview with Olivier Bouillaud from Albéa

Download the full publication

At a recent conference dedicated to cash management in the US, Sarah Gundle, project manager at Redbridge, presented the three differences that always surprise European treasurers conducting their first operations across the Atlantic – Interview.

What is the first thing that usually surprises a European treasurer starting a US operation?

Sarah Gundle: There are three fundamental differences between cash management in the US and in Europe. The first is certainly the bank fees statement, which is easily accessible but more difficult to decipher across the Atlantic. The second is the concept of the earning credit rate or ECR that must be mastered to reduce the cash management costs. Finally, the check collection chain, a means of payment that is still very present, involves different players than in Europe, which can be puzzling.

What is so different with the US bank fee statements?

– In the US, cash management banks tend to break their billing statements into a lot more service fees than in Europe. If it is common to see around 50 items charged in Europe, this number easily reaches 250 in the US. So, while it’s generally easier to get bank billing statements – it’s even mandatory for a US bank to send a recap for all the services charged, it is difficult to wade through all the information.

Didn’t the Association for Financial Professionals work intensively twenty years ago to standardize bank fee statements?

– They did and they continue to work on that standardization. There are new revisions every five years to the AFP Service Codes Set (to find out more on the last code set update, please read our article), but its use is not mandatory.

Even when larger banks and regional banks tend to structure their billing statements according to the AFP service code set, they still break things down in different ways. One might have a service that’s only one line item, when another might split that out into several line items. Regular mapping is necessary to understand which service each item relates to since service names can change, as well. Depending on the number of accounts, it can take an entire week every month to a treasury analyst to harmonize the statements before being able to analyze them!

How do European banks that have local subsidiaries in the US behave?

– European banks operating in the US tend to structure their bank billing statements in a simpler way. This is partly because they are just not as set up to handle the complexities and with all of the different services that US companies are looking for.

Do you feel that complexity of banking statements in the US is justified?

– It could be simpler. The complexity of bank billing statements in the US has gotten to a point where it often serves more to confuse and make it more difficult for clients to challenge them.

Why are checks still play an important role in the US?

– Americans love their checks and there’s are a couple major reasons that this mean of payment will not go away any time soon. The country has major sections that are rural, with no necessarily good internet, nor good access to banks. In the meantime, the US Postal Service is required to deliver and pick up mail from every address every day provides an easy and convenient way for people to pay at home. Also, paying online implies a steep learning curve for older people used to checks.

Can you briefly explain how the checks are processed?

– It depends on the number of checks you get each month. A company getting only a hundred checks or so a month can process them easily either with a bank deposit or a remote scanner. For companies accepting a large volume of checks every month, the easiest way to collect them is through the lockboxes. A lockbox is kind of an outsourced AR resource. Your bank or your lockbox provider will give you a special address – a post office box – with a specific reference number which will be used by your clients to mail in their checks along with the coupons and the remittance.

The lockbox facility has people to open your mail, scan and cash in the checks. If there are any errors, they’ll follow a decision process designed with you. At the end of the day, the company receives a batch with all the accounts that have collected money, any errors, any special considerations… That way, the treasury team isn’t spending too much time on checks and can run a leaner team. Lockboxes are a huge value for insurance companies, utility companies, any company that’s going to have large recurring volumes and also has that requirement to accept any form of payment.

Do all lockboxes look the same?

– No, there are definitely superstar providers. Some lockbox providers can’t handle all of the volume and tend to specialize on B2B businesses, leaving retail and wholetail clients to larger providers. Some banks also have gotten out of the game, but since this service is required by their clients, they’re white labeling another company’s product.

Why is the earnings credit rate a key concept when dealing with cash management in the US?

-The earning credit rate started as another way to attract customers after Regulation Q prohibited banks from offering interest in an effort to curb speculation. It’s almost like an interest rate because you’re paid a certain amount to keep your balance at the bank. But instead of giving you that money, it’s like an allowance that you can use on your bank fees.

Is there a formula which sets the earning credit rate and does it vary with the Fed Fund rate?

– The ECR results from a negotiation with the bank and will be related to where the Fed Funds rate is at the time of negotiation. Most banks offer flat fees, which means that regardless of what the fed funds rate is, the company will be earning the same amount. I’m not a big fan of that because when the Fed Fund rate goes up, the bank is not compelled to increase the ECR. Generally, a couple months can go by before the banks increase the ECR, but there’s no requirement to do so.

It is important to set up some rules regarding the ECR when crafting a contract with its bank. For instance, we advise clients to institute an ECR floor and say it will never drop below a certain point and to calculate your net rate whenever possible. When the company is also paying insurance recovery fees, its net rate could be negative, which means it pays the bank to hold the balance. That’s why we always try to ask about that to protect our clients.

How can cash management fees and services in the US be improved?

– A full bank fee statement monitoring, if done manually, might not be possible every month. We would love to see our clients doing this, see them with software that can help make it happen. But if the treasury department does it manually, we advise to stick to the 80/20 rule to review the bulk of the fees, and then to perform a quarterly review of all fees just to check since the company typically only has 90 days to report errors to the bank.

On top of statement monitoring, treasurers should have an annual review with each banker. The discussion should encompass the relationship as a whole, not just cash management, but also any lines of credit and anything they have coming that may benefit to the treasury department. They’re going to come prepared to that review with all kinds of recommendations. The treasurer must also come prepared to the discussion, with a detail review of contracts and statements, and a list of questions to make sure that the bank share the same vision for your company moving forward.

Banks invest to improve and digitalize both their internal processes and their customer offers. Even so, there are still huge differences among them, as all banks did not start this race at the same point and do not move at the same speed, write Samatha Felipe-Lopez and Wesley Johnson.

Looking at the banking and banking services industries, digital capabilities have now become a vital need for both individual consumers and for corporates. Having to now handle day-to-day business activities virtually, the need for banking’s digital transformation has become a necessity.

The digital transformation

With the recent increase of many companies adopting the latest digital trends, there has been a boom in the ecommerce space. Ecommerce has been on the rise over the last decade, but the pandemic has contributed even more to the success of online shopping with physical shops being forced to close indefinitely. Corporates without an online/ecommerce presence have rushed to join those who already invested in the infrastructure.

What exactly is digital banking?

Digital banking refers to the use of both online and/or mobile tools to access various financial services and activities that were historically only available through physical bank branches. Driven largely by individual consumers (mobile banking apps, personalized financial planning, contactless payments, voice banking or on-demand loans), banks have expanded their digital offering to corporates both large and small(cash flow forecast, working capital, artificial intelligence – AI). Even though the needs for consumers and corporations are not exactly the same, they both have one thing in common that is now the new normal for our society: the need for real time digital banking.

Contributing even more to the ongoing ecommerce boom, the acceptance of digital wallets by corporates and the use of digital wallets by consumers grew rapidly in 2020 where they were used in “44.5% of the e-commerce transaction volume, up 6.5% from 2019” according to FIS from their annual global payment report. Even though there has been a rise in the use of digital wallets, it does not mean every region is on the same level. Some regions clearly had a higher usage of digital wallets when compared to others. However, all regions have seen an overall increase in the usage of digital payments in general. As more and more consumers switch to different forms of digital banking, one payment method suffers greatly. In today’s digital age, consumers and corporates have accelerated their transition away from holding, accepting, and paying in physical cash.

According to FIS’ Global Payments report, cash sales at the POS fell from 32.1% in 2019 to 20.5% in 2020 and have no sign of gaining back any market share lost to the other digital payment methods.

The treasury teams within most global corporations are no strangers to the digital transformation within their business function. However, the outside pressure of Covid-19 has expedited their need for innovation. (See graph below)

How has the pandemic impacted the digital transformation of your treasury

(Question asked to corporations with more than $2bn in revenues)

digital banking graphs& charts

Source | JP Morgan

 

In this current environment, treasurers and their teams are focused on improving current processes around developing new key API’s, cash flow forecasting, and their liquidity and cash management. Identifying new data points and improving the teams overall data capabilities with more accurate forecasting, even with uncertainty ahead, is critical for the company’s survival. According to JPMorgan “40% of companies are exploring initiatives to enhance their data capabilities in treasury” A further one-third have already invested significantly in these” which is a clear indicator of what direction treasury is moving towards.

Where do banks stand in the race for digital?

Banks invest to improve and digitalize both their internal processes and their customer offers. Even so, there are still huge differences among them, as all banks did not start this race at the same point and do not move at the same speed.

Indeed, some of the oldest banks (especially the international ones) have a heavy legacy that might slow their evolution down and make it more difficult to innovate. Their 25-year-old banking platforms are not compatible with today’s varying needs. Sometimes, they even have to deal with layers of different platforms depending on the banks they have as acquirers over the past years.

What is a neobank?

A neobank is a bank fully digital, operating entirely online without a single physical branch.

Banks are now facing the fierce competition of neobanks and fintechs, which are more flexible, agile, and innovative. Neobanks such as, Nubank, founded in 2013, in Sao Paulo, Brazil offer a more streamlined approach to banking. Claiming 3 million clients in 2018 and now up to 48 million clients as of September 2021, this neobank has been seeing tremendous success. They are planning to raise up to 3,000 million dollars (2,590 million euros) and reach a valuation of 50,000 million dollars after its introduction into Wall Street. Nubank will likely soon be more valuable than the main Brazilian bank iItau Unibanc. Yet, Nubank is not the only one seeing success, they are followed by Chime in the US, N26 in Germany, and many others.

It is no surprise as to why neobanks are so successful. These fintechs focus on client needs and are agile enough to adjust their solutions based on what people are looking for. Nubank has specifically targeted people that traditional banks have neglected for years, offering bank accounts and credit cards for free to the unbanked. This offer along with the sweet promise of a simplified service accessible on a smartphone has captured many new customers.

In the past, banks used to predominantly focus on being compliant with the many heavy regulations placed upon them, but today they have changed their strategy. In order to keep up with this fourth industrial revolution, they have become more client oriented and are embracing relevant digital trends (while continuing to comply with regulations; if we had to specify).

To keep up with the industry, some banks have chosen to collaborate with fintechs, while others have decided to internalize their developments and innovation strategy.
Generally speaking, small or local banks tend to build partnerships with fintech. For example, ING has recently concluded a partnership with the fintech Minna Technologies. The objective is to launch a new digital banking service: an online subscription to new services or products. ING’s customers will be able to directly manage their subscription in the banks digital channel without being redirected to another environment. Customers will have a clear view on all the services or products they have subscribed to and they will be able to cancel or upgrade them.

Global fintech investment chart

Other banks combine self-developed innovations and partnerships with fintechs such as the US bank JP Morgan: “We have an annual technology budget of $12 billion and in the last 18 months have added over a hundred new team members focused on treasury innovation, exposed dozens of treasury services APIs, engaged several hundred clients on corporate treasury innovation & co-creation, and engaged over a hundred FinTechs in this space.”

Navigating the digital banking landscape

In recent years, we have seen a race for innovation in which companies seek to be the first in launching a new product or service that will address a customer’s (new or growing) needs. For example, since the Covid crisis, the need to improve cash forecasting processes and the desire for more accuracy are more important than ever (as we can see in the graphics below).

With innovation in mind, banks will try to address the needs of their clients, whether they are large corporates or everyday consumers. Their goal will focus on becoming the first player in that market and if they are not able to achieve this, then they will try to differentiate their solutions above the others. Nevertheless, all of these services are relatively new and we cannot truly determine their effectiveness or efficiency for the future.

The main risk corporates will face, and are currently facing, is the uncertainty of investing in a service and its infrastructure that may not fully answer their needs. Now more than ever, consumers face increased risk, such as fraud, due to the rise of digital banking. Consumers are not alone in their concerns, as fraud prevention and management is always a large topic for corporates. That is why it is very important to always spend time in assessing your core needs and doing an RFP to assess the quality of the offer. Regardless of if you are just a consumer or a large corporate, due diligence should always be done when it comes to decisions around banking digitally.


Read our new special report on the cash management & payment trends that will transform your treasury department in 2022

The growth and vitality of the payments industry has fascinated all observers during the past two years of the pandemic. Now with recent geopolitical developments arising from the Russia-Ukraine conflict, it is being tested again.

Our new publication analyzes the most prevalent trends and innovations in the treasury world today.

Included in this publication:

  • The Global Resurgence of QR Codes
  • Choosing the Right Payment Terminal in an Ever-Changing Environment
  • The Rise of Buy Now, Pay Later
  • PCI Compliance in an E-Commerce World
  • Where Do Banks Stand in the Race for Digital?
  • Virtual Accounts, Which Companies Should Implement Them?
  • The Future & Alternatives to SWIFT GPI
  • Global Digitization in the Depository Space
  • “Switching Banks Was the Right Decision”: An Interview with Olivier Bouillaud from Albéa

Download the full publication

Despite the importance of cashflow forecasting for a company’s investment and financing decisions, a majority of companies still rely on a single technology – Excel spreadsheets. Solène Moyne, senior analyst at Redbridge, reviews the capacities of the different cash flow forecasting systems and tools currently on the market.

The importance of cashflow forecasting

According to a survey by Redbridge conducted in 2019, 94% of companies perform some form of cashflow forecasting. Most of the survey respondents noted that there are two key success factors to ensure high-quality and accurate cashflow forecasts:

Data quality

The importance of data quality is clear; without good data, a company will not be able to produce accurate cashflow forecasts that meet their needs.

Communication among contributors

The other key success factor may be less obvious, but communication among the various stakeholders in the company is just as critical for predicting future cashflows accurately. This work can become difficult and less productive if there are competing visions among departments, impacting the quality of the forecasts. It is therefore essential to get buy-in from all key parties in the process, or to automatically interface the cash forecasting production tool with the group’s various systems (e.g., CRM, EPR, credit management tool).

Despite the importance of cashflow forecasting for a company’s investment and financing decisions, a majority of companies still rely on a single technology – Excel spreadsheets – for this important task. However, spreadsheets have severe technological limitations and require a lot of manual effort. They are also susceptible to errors. The Covid-19 pandemic, and now the current political both highlight the need for companies to be able to produce different forecast simulations quickly. For this reason, treasury departments need to consider automating the cashflow forecasting process using more sophisticated tools and systems. However, automation remains a real challenge for many treasury departments, as this requires the selection of the systems and .

Overview of the main cashflow forecasting tools

In general, companies with an advanced solution use either a treasury management system (TMS) or a specialized cashflow tool to prepare their forecasts. Each has its own distinct advantages and disadvantages. For example, a TMS enables data centralization and saves times while improving the company’s cash culture. However, such systems might have limited reporting and analysis capabilities. They also require dedicated training to ensure optimal use.

A specialized cashflow tool provides advanced consolidation methods as well as advanced reporting. This can allow for a more extensive analysis and greater detail. It can also improve the company’s cash culture and optimizes internal processes. However, these tools also require an interface with the TMS or ERP and .

With the capability of more in-depth analyses, specialized tools parallel scenario management. For this reason, some companies, especially large conglomerates with a lot of subsidiaries, may choose this .

The impact of AI on forecasting

Artificial intelligence (AI) is becoming increasingly important in a number of fields, and cashflow forecasting is no exception. Both TMS and specialized cashflow forecasting tools are increasingly integrating AI into solutions. However, it is important to emphasize that AI is not intended to replace humans. Rather, it complements the work they do. Combining the power of AI with the critical vision that people provide results in cashflow forecasting modeling .

Artificial intelligence requires a lot of historical data to work well, both internal and exogenous. The data also needs to be very good quality, which involves cleaning it before it can be used and can be a time-consuming process. In addition, AI is not always transparent, which is another reason that can lead to hesitation when it comes to adopting AI. However, there have been great strides in terms of the tools that integrate AI.

Cashflow tools that use AI

On the TMS side, there are already several systems available on the market that use AI to forecast cashflows. These include Diapason, Kyriba, and Integrity, which add AI capabilities and algorithms to trending and modeling.

Another company offering AI-assisted tools is Coupa, which acquired Llamasoft and now offers machine learning solutions. These are based on an analysis of historical transactions, which are imported into the Coupa TMS and have been developed both for fraud management and to improve .

There are many more examples of TMS solutions using AI. However, a number of specialized forecasting tools involve artificial intelligence as well. These include:

  • Agicap, which has developed a machine learning system for SMEs that enables daily cashflow forecasts based on actual cashflows
  • Verteego, which applies AI to sales forecasts based on historical ERP data and then adds external data
  • CashForce also provides an AI solution that involves machine learning
  • TipCo is a European company that specializes in treasury reporting. They also offer a predictive analytics solution for automating cashflow

How to choose the right cashflow forecasting system & tools

Currently, a large number of companies rely on simple spreadsheets to determine their future cashflows. While Excel is cheap and easy to use with minimal user training, often there is only one person at the company who knows the file macros. This can lead to risks if that person isn’t there (because they are on vacation, or they’ve left the company).

If senior management wants weekly or bimonthly updates, automating the process to save time, reduce manual effort, and improve accuracy often results in the best cost-benefit ratio. Next, based on your particular environment, the quality of the data available within the group, and your reporting needs, you need to assess which methodology and tools provide you with the best return on investment.

Overall, finding the right solution or method depends primarily on your company’s size and . Each option should be assessed thoroughly from a cost benefit perspective to allow you to choose the best one. If nothing on its own seems like a good fit, using a blend of different solutions or methodologies to create something specifically tailored to your company would be a necessity, as author Iris Rousselière points out in another article about cashflow forecasting. While best market practices are an ideal many strive for, you might need to complete a data management project first before you are able to fully unlock the true power of the cash forecast .

 

Angie Grunte, Managing Director at Redbridge, gives her insights on outsourcing the payment acceptance strategy and the many benefits that come along with it.

What is the benefit of outsourcing the strategic oversight of a payment card acceptance program to Redbridge?

Angie Grunte: We have found that most organizations do not have the time, resources, tools or technology to effectively stay on top of managing their payment acceptance strategy because this is an ever-evolving space. There are constantly new rules from brands and the regulatory environment continues to evolve.

Outsourcing the entire payment strategy to a third-party firm is common in certain industries, such as in the college and university space, waste management, utilities, etc. Handing it over to a third party can be a great solution for organizations who do not want to deal with payments at all, but it’s not what we offer at Redbridge.

We believe that businesses should keep ownership of their card payments, particularly to be able to choose the innovations that best suit their customers’ needs, but also to prevent any costs drift.

To help each company manage its payment card acceptance program, Redbridge has created “PACE”, which stands for Payment Advisory and Cost Management Experts. PACE is a dedicated team of payment industry experts that helps organizations create efficiencies within their own payment acceptance environment, specifically focusing on helping to improve the user experience while minimizing the total cost of accepting these payments.

Many of us previously worked at Vizant, a boutique consulting firm focused on the payment space, acquired by Redbridge about three years ago, which has allowed us to grow and scale our solution to serve a larger audience.

How PACE helps with payment acceptance strategies

What type of company is your service aimed at?

AG: We have roughly 60 clients in our portfolio today, representing about 3.5-4 billion in payments volume annually.

Since our solution is customized, it creates value for any organization of any size and in any industry. We can help robust teams focus on cutting-edge solutions and we can also work as an extension of teams who have minimal time and resources, effectively providing them extra arms and legs to tackle their payment acceptance strategy.

Our team has a proven track record of adding value in any of those scenarios. We have a good concentration of clients in the insurance space and in the B2B or business services space. Healthcare is another large and growing space for us, and we’ve also been very successful in the higher education, non-profit, e-commerce, and even retail spaces.

What are some examples of cutting-edge payment acceptance management solutions that companies need to consider today?

AG: There are no “one size fits all” solutions to improve your payment card acceptance environment.

For some organizations, the improvement will come from getting a handle on the data, being able to normalize it, to draw insights and have conversations that may not have taken place before with acquirers, card brands, gateways. Here, getting to know the incentives to introduce or grow card brand solutions, marketing approaches, payment types or channels is at stake.

For other clients, the improvement will come from solutions like pinless debit or debit routing, when the organization simply hasn’t yet had the opportunity to introduce them because the ROI wasn’t worth it so far.

In the retail space, the trendy topic is “Buy Now, Pay Later” and how it can not only improve the user experience, but also be implemented to attract new customers and increase repetition with customers as well as grow the average basket size.

Another big challenge in the B2B space is getting very granular on interchange optimization and third-party solutions to help organizations better optimize the interchange moving forward. These are just a couple of examples of where Redbridge can help add value.

How does Redbridge work with its clients?

AG: We are sensitive to the fact that our clients don’t have a lot of time, so we’ve designed the process with that in mind.

Part of the help we provide is assisting them in getting a handle on their current state and then being able to draw some conclusions on what the available solutions are to create additional efficiencies and reduce costs. What do those cost saving levels look like?

We provide support from the very beginning to help them collect the data and information that we need to be successful with this process. We help them with collecting that data and information. We then take that data and information in-house and do a very intensive audit or deep dive into their existing environment to identify areas of opportunity, specifically where we can introduce and create efficiencies as well as where we can derive cost savings. We then present this information to our client along with actionable recommendations and solutions on how to achieve these results.

Timing is the essence. We move with a sense of urgency knowing that acceptance costs are continuing to increase. Depending on the client’s involvement and the accessibility of the data, we can deliver findings to the client about 6-8 weeks after we receive the data in-house.

After we deliver our findings, we work in a very hands-on fashion. Each month, our team takes the lead to help each client implement our recommendations. They’re receiving reporting and insights, as well as industry updates, and we’re working together to validate the levels of cost savings achieved.

Could you describe the advising and technology that are offered as part of this service?

AG: They go hand-in-hand. We have tools and technology that help us in getting timely information to our clients and give them great insight into their acceptance environment. Then our dedicated team of experts, who have been working in the payment card industry for well over ten years on average, add an additional level on top of that. They’re here to help with the real-world applications and navigating some of the challenges that organizations face when they’re looking to execute their optimization strategies.

What is the return on investment for clients?

AG: The ROI is typically quite significant and we help clients to assess that. The investment upfront from their perspective is very minimal. It’s really an involvement from a data collection perspective, and we’ve even automated and taken over that to a great extent. So, there’s very small investments as far as time and resources.

Once we get into the implementation itself, the solution varies for each client, but we work with them to identify ROI for each solution and then track performance over time. But what our clients see in general is that there is a significant reduction in their cost of acceptance, and over time we are able to maintain these reductions.

We talk in terms of effective rate, which is a unit of measurement in the industry that looks at fees divided by volume. You can track effective rates for a multitude of things. When you look at overall effective cost in terms of the effective rate, we are able to demonstrate to our clients, significant decreases in the effective rate and then sustained effective rates over time that outperform the market.


Reduce costs, boost revenue, and minimize fraud

In record time, banks appear to have stepped up and deployed much-needed liquidity to global commodity traders, especially to metal traders affected by unseen circumstances in the LME (London Metal Exchange). For Mihai Andreoiu, Senior Director at Redbridge, the current crisis re-surfaces some older questions, like can commodity traders keep relying mainly on bank (uncommitted) lending?

A few months ago, I was writing about “From Bust to Boom” and trading companies needing to pay increased attention to their liquidity in a rising commodity prices environment.

Four months later, and we have now witnessed unprecedented almost black swan like events. Past the luxury of accordion features, commodity trading houses had to arrange emergency extra liquidity (underwritten in a matter of days) not to entertain additional business, but to simply keep the existing business’ hedge positions in place. Not a “nice to have” line increase on profits, but a “must have” to ensure the appropriate risk management, vital for such companies’ business and even survival.

Banks are stepping up

With banks stepping up and deploying liquidity to metal traders affected by the unseen circumstances in the LME, they have earned substantial additional fees while lending and reinforcing their commitment to their favorite clients.

Overall, the current conflict in Ukraine has triggered strict reviews and monitoring of banks’ exposure to Russia and Ukraine. While the sanctions, so far, have had a moderate impact on the commodity flows, the bank market stance is more than cautious. Both traders’ and banks’ side compliance and credit teams have come under stress to make sure the situation is well mastered.

The trouble is far from over

At a time of already increased commodity prices in a no longer transitory, but now inflationary environment, such shock increased volatility across the board and drove the market to a mere head-line reaction state. The implications have been broad, in the very short run, and the trouble is far from over, but both commodity houses and their banks seem to have weathered the initial storm. Even the hedging model came under stress as well with brokers demanding higher initial margins for their contracts.

Some of the older questions re-surfaced: can commodity traders keep relying mainly on bank (mainly uncommitted) lending? Can the same volume of physical business be maintained at these price levels with increased volatility and changing broker and exchange practices? Will the profitability of trading businesses remain attractive with the increased cost of borrowing? Is there certain trading business that deserve more capital? Will the banks’ “flight to quality”, better said flight to large balance sheets, be permanent with smaller players having an even harder time obtaining the needed financing?

What’s next?

While “this too shall pass” is applicable to a substantial part of the current developments, other aspects are here to stay. The free money party is coming to an end with the bill being paid by producers, traders, and end users. However, if properly managing their credit book, and not being affected too much by conflict related exposures and loss of business in Russia, banks’ financing commodity trading firms should very likely be headed for a strong year, especially with credit lines at historic high utilization levels. Something to keep in mind when deals come up for renewal!

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