FIS Modern Banking Platform
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July 25, 2017
Kris Carrera I Business Line Executive, Credit
As businesses modernize, payment mechanisms are among the last aspects to be taken into consideration. When staff and suppliers are paid, many businesses still take a last century approach, relying primarily on check payments – some even resort to handing out cash. Despite the financial world’s best efforts, and the government aim to reduce reliance on cash and checks, check usage remains hard to kill off.
Speeding Up with ACH
Automated clearing house (ACH) payment infrastructure may be the answer businesses need. ACH payments reconcile faster than checks, they provide transparency, and their security and fraud protection is greater than paper.
Opportunities for ACH use are there for companies of every size. Consider services like Uber and Avon cosmetics; Each of these companies have large bases of temporary staff who require payment but generally are paid through checks. Many large corporations, renowned financial institutions, and even high-tech innovators pump out paper checks like confetti. Highly innovative companies like Google remain dependent on check payments to reimburse for AdWords revenue. Likewise, YouTubers who are paid for views are likely to have a check mailed to them rather than an instant credit to their bank account. Despite their expensive payment infrastructures, even modern financial institutions issue millions of checks for residual car and house loans, closing out final settlements and more.
Payments in an Instant
Resolving the paper payment problem has traditionally involved businesses switching to long-established ACH mechanisms. But wouldn’t it make sense to cut to the chase and introduce an instantaneous process? By making credit transfers over the debit channel rails, recipients can get paid quickly, with the security and transparency we expect from modern digital payment mechanisms. Instead of waiting multiple days for ACH credits to appear or checks to clear, transactions can be instant. Uber drivers get their money for yesterday’s journeys today, YouTubers are reimbursed instantly and Avon salespeople are credited with their commission seamlessly.
The worldwide evolution of credit transfers is currently underway and threatens to be the long-awaited silver bullet that sends checks and cash to history. As the U.S. payment ecosystem deploys faster payment mechanisms, settlement times are measured in seconds rather than days. The only things creditors need to proceed is a bank account number.
Many business processes can be streamlined through implementing faster payment mechanisms with supporting digital services. For instance, when an insurance company reimburses a client for an auto accident, rather than sending an agent out to estimate repair costs, clients can send a photo of the damage. This allows the insurance company to make an immediate online estimate, followed by an instant credit to cover the damage repair. With no delays waiting for the check to clear, the money can be transferred and the car repaired with minimal fuss. Similarly, casinos can resolve larger payouts instantly by sending payments to the winning account, eliminating the need to hold large amounts of cash. Even the world of minor league sports, where cash is king, can be transformed. Staff and food suppliers can be credited instantly and safely, rather than employing clerks to count and distribute large volumes of cash.
Payments with Benefits
The speed of transfer is not the only reason to utilize the debit channel. With modern faster payment rails, transactions can be accompanied by additional information that simplifies invoice reconciliation and account reporting. While ACH payments permit modest payment information to be included with the transaction, sending payments through debit channels allows for enhanced data to be included with detailed transaction descriptions. Dates and times, and merchant categories can also be included in a robust manner.
Merchants who automate many operations can gain more control over transactions, with increased transparency and the prospect of fraud and laundering largely eliminated. From a regulatory point of view, transactions also become more traceable when the paper chase of checks and cash is removed.
Savor the Flavor of Faster Payments
Consumers and businesses continue to chip away at paper-based payments. This migration is long overdue, for electronic-based payments to replace the use of cash and checks. Small businesses remain responsible for almost half of the checks being issued in the United States, so the move toward faster debit transactions represents a major step in the move for a fully digital payment ecosystem. By moving away from paper, businesses can make transactions in a simple, safe and environmentally friendly manner. Through direct deposits, they also can improve their efficiency, reduce costs, and provide their employees and contractors with a convenient, value-adding service.
In addition to pushing payments, a new faster payment infrastructure allows companies to pull funds when a service provider sends a request for payment. For instance, an electrician can send a payment request directly to a consumer for immediate payments, with all the enhanced data required to ease payment reconciliation included.
The B2B world has largely embraced digital payments, with the word of consumer payments quickly following the lead. And with the advent of faster debit transactions available, the B2C market is running out of excuses to continue using cash and checks. It’s time to get with the program and digitize all aspect of payments.
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