The impact of innovation on processing receivables

At this time, I'd like to formally welcome everyone today to our June webinar, focusing on the topic of "The impact of innovation on processing receivables," hosted by your U.S. Bank Global Treasury Management Partners. My name is Brianna Dunn, and I'm from the U.S. Bank Global Treasury Management Learning and Development team, and I'll be moderating today's webinar.

Before we start today's discussion, I'd like to briefly introduce our speakers, Bryan Schneider and Mike Hunter. Bryan is one of our vice presidents within our Working Capital Consultant team on Global Treasury Management. As one of our newer members to the team, he brings over 20 years of experience in payments, corporate cash management, and fintech sales and partnerships. His primary focus is to help organizations increase efficiencies, reduce costs, as well as risks, while maximizing return on platforms and technologies that support existing processes.

Mike Hunter is our additional speaker today, and is our Receivables Transformation Group Product Manager, where he brings over 17 years of experience in ACH conversion programs for larger retailers, as well as managing remote deposit capture products. In his current role, he is responsible for transitioning traditional paper-based receivables products towards digital payment interactions and solutions.

As you can tell, we have a wealth of knowledge between these gentlemen today, and we're extremely excited to have them join us as we take a closer look at how processing receivables has, as well as continues to transform. So with that, I'll hand it over to you, Bryan.

Great. Thank you, Brianna, and thank you for joining today. You may have heard the phrase "Necessity is the mother of invention." It's just as true today as ever. Sometimes the catalyst for change, I would say, can be more gentle or gradual, and other times, very fast and painful.

[CHUCKLES]

If you think about the wheel and the need to make life easier back in Mesopotamia in planting crops and moving heavy loads, certainly the catalyst was a bit more gentle. I would also say that the light bulb was another example that certainly changed our lives. But dealing with a candle wasn't terrible. However, we certainly have seen other catalysts that have been much faster and more painful.

And I know Mike, we've talked about it a bit, and you've seen over the past a lot of different catalysts for change. And maybe you could speak to a couple of those as well.

Yes, thanks, Bryan. I mean, if you think about some of the larger catalysts for change within the payment space, one of the ones that jumps to my mind is actually September 11th. Prior to that event, around 6 billion checks were flying around on an average day. And during that event, those checks had to sit on the tarmacs and were not able to be passed between banks for clearing. And that actually led to and was the catalyst for the passage of Check 21 in 2003. And Check 21 has spurred just numerous advancements and innovation in the payment space.

And one that's a little more close to home that we're all familiar with right now would be the pandemic and what's going on-- social distancing, quarantining, but just the impact that that is having already, and I think will continue to have in terms of changing payment behavior towards more contactless payments.

Personally, I've always been a debit card user. And just during this time, and maybe it's to make me feel good, but I've started using Apple Pay more often, just on my device, because at least mentally it feels like I'm touching that point of sale device less. And so for some reason, that feels more safe to me.

So I mean, that's just one example. And I think we're going to continue to see many more examples as an outcome of this current situation that we're going in.

So Mike, great points. I'm curious. Let's check in with those online with the poll. Brianna, perhaps you could help push out the poll. Thinking about yourself here, how many participants on the line have changed their method of making personal payments in the past three months?

And while we're waiting for that poll question. How about you, Bryan? Have you made any changes to how you're making payments?

Absolutely. Similar for me, I use an iPhone, so Apple Pay has become my new friend, that, and a lot of online purchases on Amazon.

[CHUCKLES]

Looks like still some results coming in. Yeah, I mean, you still do have to touch the point of sale device to put in your pin. But again, I think it's a mental thing. And I think that mental part of it is going to get continue to drive consumer behavior, definitely at the point of sale.

And so it looks like our polls are in. Looks like a portion of folks certainly have made changes. And it looks like a little bit more have yet to change their personal payment behavior. So thank you all for participating in that poll. It's always helpful just to get a sense for what's going on in the marketplace.

So to make the transition to faster digital, innovative, frictionless payment interactions, which probably call out next where payments have been for the last few decades, so if you look at the list here, all payment types that we're very familiar with. You've got cash and check, which has the benefit of being tangible and trusted. But on the business side, it's expensive to process. And you think about current events, you can call it, in quotations, "dirty" payment type.

You've got wires, which are quick. They're irrevocable funds, but they're definitely expensive. And the remittance data is often lacking associated with that payment. We've got ACHs, which are quick, cheap. They can hold remittance data, but you've got the notch authorization requirements. And oftentimes, the remittance data that it can contain is not contained, meaning it's either lacking or formatted improperly.

And then credit card, it's a credit extension that the consumers, you get the rewards. So you've got pros there. But you have to deal with merchant acceptance. And also, the interchange fees make it a pretty expensive payment type.

Mike, yeah, definitely great points and a great recap of the legacy payment rails. I saw a poll recently looking back on the past 15 or so years of [INAUDIBLE] and [INAUDIBLE]. And it said, around 15 years ago, checks represented about 80% to 90% of the B2B payment flows. And now we're much closer to the lower 40%, and declining. So I would suspect that the current pandemic is certainly going to help further reduce paper checks, given the current market.

Also, I think that it's interesting as we think about legacy rails and innovations. A lot of the innovations related to payments over the past, say, 10 or 20 years, have actually happened on the backs of the legacy rails. So for example, if you think about Apple Pay or the PayPal experience, both of those are leveraging ACH rails or debit rails or even card rails for funding, but moving funds in and out of their respective wallets.

Additionally, we've seen some more recent releases and advancements with the QR code payments. And again, that's sitting on top of the existing legacy infrastructure that you [INAUDIBLE] well.

I would also note here that, clearly, the gig economy continues to grow and further drive innovation and specific needs. There's clearly a continued need for speed and reduction of costs related to payments, that these particular rails aren't perhaps doing the best job of supporting. So workers are looking to get paid 10-day rights. Think about the Uber drivers or the yoga teachers, a lot of times, at the end of their shift, when they're leaving the studio, they want to get paid. And a faster payment is ideal.

So I do think it's interesting to see how the consumers and businesses continue to impact in payment innovations. So we've covered legacy payment rails. Let's look at more recent advancements in payments and our interaction with them.

Yeah, definitely. Thanks, Bryan. So if you think about maybe some of the innovation over the last 10 years that had impacts in the payments and banking space, we've got listed up here mobile. I would actually go back a little further than that, maybe 15 years with just online banking. I mean, it took a long time for people to accept that online banking was a legitimate banking channel.

Like it used to be you would go online and the expectation was just, well, the consumers or customers are only going to be comfortable with checking their balances. And then, obviously, then everyone started doing their banking online. And then mobile came around, and I'd go to industry conferences. And whenever someone forward-thinking was talking about that everyone was going to be doing their banking on their mobile devices, all the old crusty bankers in the room would be shaking their head, no, that that wouldn't happen. And that has happened, and it's transformed the payment space.

You look at Square. Square is a good example of the necessity. It was a need. If you're not a traditional brick and mortar merchant, you're a food truck, you're at a disadvantage without being able to accept a card. And that's where Square stepped in and filled that void and innovated.

And what I'd like to point out, too, voice-enabled payments as well, which is a bit of more emerging when you can just ask Alexa to make a payment to a biller for you, which really all Alexa is doing is the initiation. You've already preauthorized the payments on the actual interface. But you're just using that voice-enabled device to make that initiation.

And then even though that's semi in its infancy, it is definitely growing. And we will see it continue to grow. And that's actually a good example is the capability for that sort of payment has been around for a long time. But what's changing now is what we call what's above the glass, pay on their phone, or on a mobile device, what's changing is what the user is seeing, what the initiator is seeing. And that's where a lot of the innovation is taking place. It's kind of at the above the glass user experience side of technology.

Mike, it's interesting and fascinating to me how technologies like mobile payments have been around for over 10-plus years. And that was one of the things that early on, a lot of financial institutions and analysts would talk about is mobile payments. Here come mobile payments.

But it's not really until recently that I feel like we're seeing a lot more of the middle of the bell curve in terms of growth. And so I'm definitely going to be interested to continue to watch how we see some of these technologies be adopted across the marketplace.

Touching on the global payment innovation side of things, we're continuing to see strong innovation and rollout of real-time payments. I was looking at a recent report that I think FIS, Fidelity Information Services, put out. And they had noted that there are over 54 countries that have activated real-time payment systems. And that's a huge number, and it's a significant jump. I think it's over a 30% to 40% jump, even in the past couple of years.

So the global innovation side, some of you may be familiar with some of these. UPI in India, a huge launch with a 365-day, 24 by 7 instant payment capability. India's done just a fantastic job of rolling that out and driving adoption. Faster Payments has been around a while in the UK and in Europe, with the SEPA instant credit transfers, but again, hitting a large part of the marketplace.

On the domestic side, here in the U.S., certainly, we're seeing RTP, the Real-Time Payments through working to clearinghouse, and also the associated RFP, the Request For Payment.

Zelle, again, another great example, more consumer-oriented. And we've also seen the Fed has announced FedNow, which I believe is going to roll out somewhere in 2023/2024. Then, of course, the pushcart capabilities that we're starting to see more adoption of that.

So I'd say, on the back of all this innovation, companies are using payments to differentiate their businesses in a number of ways. I often think about Uber or insurance companies. So in marketplaces that have been demonetized, it's an interesting strategy that corporates are using now to drive adoption and to bring in more customers, because they've improved the experience for payments.

So I guess I would like to take a moment here then to ask a question of the audience. Thinking about your businesses, how many of the people on the line have received a real-time payment from one of their business or trading partners to pay an invoice or obligation?

We know, obviously, the real-time payments have been around for probably two-plus years. And like Bryan had mentioned, soon to come or what's being built up as RFP. We know Zelle is getting into the game, so we're just kind of wondering-- and I'm sure you've been-- you've had your financial institutions talking to you about this is coming. I'm interested to see what percentage of the participants on the line have actually received an income in RTP payment.

Alright, so the poll should be posting here any minute. I'm definitely curious on this one here. Great. So we've seen, I guess, nine folks here out of the audience that their business has actually received or sent an RTP. There's a number, clearly, that haven't yet, but it's nice to see that we're seeing adoption in the marketplace and seeing demand.

Well, and I think that definitely shows that there's room to grow. And we understand that, because not all banks participate yet. But I think that's something we will definitely see rise and become a more common receivables payment type.

So what does all this mean for the businesses, for the receivables? There's innovation. A lot of the innovation is on the payment side. But what does this mean for them? And in general, and if you think about this move towards digital, what it means is decreasing paper receivables and increasing electronic.

And what we've seen in the past with the move from check to ACH or wire or other electronic payment means is that often means increasing exceptions. You think about your CCDs or your CTX ACH incoming payments. And often, when we talk to our clients, and about efficiency gains, they say they want to move towards electronic payables because it's cheaper.

But on the receivables side, even though it's a bit more expensive upfront for the processing fees to receive paper, the remittance data is there. And it's generally good. And so that is just one of, let's say, the outcomes of the move towards electronic.

And because of that, probably five, six years ago, and for a number of years, the focus of the industry and all industry conferences has been around integrated receivables solutions, and how to take in all those different payment types and package them together, and get the disparate remittance information and match it up to the payments, really, to help with the automation, the auto-posting of receivables for our clients, for businesses.

And a lot of innovation then took place with integrated receivables. They went from just being a way to combine data and put them together in a file and post it more efficiently in one file, to helping to reduce the exceptions, so to take the remittance data that was in an email and match it up to the CCD that came in.

And then we went to ingesting opening AR files. So if an integrated receivables solution can connect to the RP system and know all of the outstanding invoices, say, for a trading partner, that makes adding the relevant data to the incoming payment that much easier. And now that's being bolstered with artificial intelligence and machine learning. So there's definitely been a lot of innovation along the integrated receivables side to help with that migration from paper to these digital payment types.

And another focus has been a specialty. I call it the "get to know your payer." And it's a bit of a C2B focus, a consumer to business payment focus. But it's really all about creating a pre-existing relationship between the payer and the payee.

So think of a biller website. If the payer is registered on there and makes the payment on biller website, the information is there, and it's known. And that's actually where a lot of the innovative new payments apps are really going is so that the payee knows who's making the payment and knows what they're making a payment for. And you're taking the reliance off the payer to include the necessary remittance information.

And with those solutions, then you start to get into APIs and API connections to ERPs. And that brings about the concept of even real-time posting of those payments.

Mike, again, bringing up a great point on leveraging APIs, and really just trying to shorten the cycle time or reduce the day sales outstanding. So a lot of the goals and what we're hearing is clearly around that reduction in DSO, and optimizing working capital.

So a couple of the ones that stood out for me were related to the reassociation of the payments with the remittance data and the fact that there is an opportunity to make that easier for customers when they're paying. So I would say that that particular challenge, and the manual processes, oftentimes, that surround the time spent reconciling, in turn, is unfortunately impacting liquidity and cash forecasting.

But to your point, the integrated receivables solution side, the [INAUDIBLE] is certainly going to help increase that automation and then get back to shortening that cycle time on the day sales outstanding. I think we're going to continue to see further automation and adoption, and then to your point earlier around real-time postings, as corporates continue to adopt a lot of the new technologies and access the API connectivity that financial institutions have been rolling out.

So shifting back to know your payer, curious, can you share a bit more about how the user experience is driving innovation, Mike?

Yeah, absolutely. And I think [CHUCKLES] the best part of this trend is that we're focusing on the experience of all the users on both sides of the journey, so not just the payer. Definitely, over the past probably three, five years, it seems like the initiation side of the payment, the user experience, the consumer, the payer, has been the beneficiary of the innovation with the cool new payment apps and very simplified screens.

But it's also the receiver, the paid business that reaps rewards of that new methodology as well. If you think about some of the new ways to make payments that are popping up.

We've got-- you mentioned RFP. That's one of them, as well as the emergence of the concept of directories. And really, those are meant to benefit both sides of the payment equation. And they do immensely. You think of the request for payment, or at least what's envisioned for requests for payment, right?

A request for payment is just that simple-- I would call it a vanilla version of a statement that can go out to a consumer from the biller. And it's very simple. It says what is owed, what the payment is for. It can envision to include a statement.

And it's meant to make it super easy so that all the payer, the consumer, needs to do is just push a Pay button. So they view it on their mobile device, and they just click Pay, and it's done. And it pushes an instant payment to the biller.

But there's a huge benefit to the biller, in that case, too, on the payee side, because they've initiated the RFP. They've included the data that they need. So again, when the consumer, when the payer, clicks the Pay button and an instant payment comes back, it's going to include all of that data that the biller needs to auto-post that transaction. So definitely, a clear experience on both sides.

And I think billers that take the time and effort to create those user experiences, say, that are simple and pleasing to the payer, they build loyalty with that customer. And I think about my experience, and I'm sure many people can relate. I've got the apps for two big box home improvement stores on my iPhone, which I've been using extensively over these past three months, staying at home. And I always default to one of them first, always, because I know the checkout process is really, really convenient and really simple.

I'd say the same is true with-- I've got [CHUCKLES] various sandwich restaurants in my town. I may even like one better than the other. But because the ordering process is significantly easier with one, I'm definitely picking that one at 5:30 PM on a Friday evening when I don't feel like cooking.

[CHUCKLES] That's great, Mike, I have a similar experience as well. Your point makes me think about a couple of user experiences, both on the business side, so B2B, as well as the consumer business on the C2B side. So the first on B2b, you think about the EIPP, or the Electronic Invoice Presentment Payment functionality that's out there. And certainly, that user experience needs to be pleasant, solid, and efficient.

So as other businesses perhaps come out to another business's website to perhaps download an invoice, to access an invoice, or to make a payment, that certainly needs to be a solid user experience as well.

On the C2B side, I would say it's not only important to have a great UX, user experience. We used to call it UI, the User Interface, many, many years ago. But it's also important to meet the customer where they are. So again, you can have a great user experience, but if you're missing out on part of the spectrum, clearly, that's a big deal.

So you need to be able to still provide other channels, be it through bill direct sites, having your own site up so that consumers can come and pay the bill at your respective website. Online bill pay, there's still a lot of aggregation needs. Mailing and mobile are some examples.

So back to your point on the big box stores, I think, again, it just further validates that UX is a critical ingredient in the recipe. And I also know that the communication is also key with especially consumers. So continue with alerts, text, emails, helping your consumers come in and make payments, and be reminded that they have payments.

Yeah, in other words, what's good for the payer is definitely good for the payee on both the-- not only consumer to business payments, but as well business to business transactions. So what sort of conversations should businesses be having to help them on this journey?

Yeah, so Mike, if I can just jump in real quickly, [CHUCKLES] what comes to mind for me is the old slogan, "If you build it, they will come." I think what we've seen now is that if you build it, they may not show up, [CHUCKLES] unless you've really considered the value and the ease of use for all the parties. So for on the receivables processing side, we've got to understand how the clients wish to pay, and make it easy for them to pay and associate the payments back with your invoices.

Yeah, and I would add on to that too. I mean, there's definitely-- you think about-- everyone's probably heard about, or should, on agile development. And instead of spending months and months of gathering requirements, and then maybe 6 months, 12 months, 2 years to build a solution. There's definitely been a move to deliver solutions quicker, and with repeated involvements from the client, from the consumer of the solution so that all throughout the process, or getting that feedback and able to adapt and make changes.

And so it's that continued iteration that really has-- that the move towards is an iteration and collaboration with the clients that have definitely helped drive this user experience focus solution developments.

So now let's, I guess, quickly recap on highlights, how your business can ride this wave of innovation and collaboration. So we've talked about how impactful events can not only spur innovation, but consumer behavior on the payment side. And definitely, again, we look to the current environment that we're in with social distancing. I mean, I can't emphasize enough that I would think if we were back here two years from now, three years from now, five years from now, we'll definitely be looking back at this current environment and how it spurred change in the payments industry.

And I'd like to say, consumer advancements have been the norm, the payer's side. But there's definitely a push to bring in the businesses and understand their pain points and needs and collaborate with them to help build solutions.

I couldn't agree more, Mike. So look, it's critical to do a few things in terms of shaping the [INAUDIBLE]. I would say, one, be proactive. Read analyst reports, attend conferences, roundtables, entry of ads, and stay current.

And the other piece is being a vocal partner. So engage with your bank or your fintech partners, and work together to ensure that you're rolling out repeatable solutions that meet your particular consumers' needs. So all this is clearly important in the current environment, as we prioritize and face, clearly, the business continuity challenges related to receiving and processing payments.

So with that said, we hope you enjoyed and found the discussion helpful. Our next client webinar will be with International Transaction Banking, related to "Key Trends, Considerations, and Solutions for Today's Global Commerce."