Academic journal article ABA Banking Journal

B2B: "Paper Free" Soon? Ever? NACHA, SWIFT, and Individual Banks and Corporates Are Taking Aim at Payments. but Transformation, like Building Rome, Takes More Than a Day

Academic journal article ABA Banking Journal

B2B: "Paper Free" Soon? Ever? NACHA, SWIFT, and Individual Banks and Corporates Are Taking Aim at Payments. but Transformation, like Building Rome, Takes More Than a Day

Article excerpt


If a newer form of electronic data interchange (EDI), XML or remote deposit capture (RDC) can't break the paper habit when it comes to making corporate payments, maybe, the greening of America will finally bring change on. Nobody is certain, but hope abounds.

"Electronification" is one term discussed in payment circles. Loosely, it refers to electronic origination through settlement, or, as a secondary definition, conversion as quickly into the process as possible.

Some experts say corporate creativity in this country might instead be inspired by the overseas (but not-too-distant) efforts around the Single Euro Payments Area, involving the creation of a zone for the Euro in which all-electronic payments are considered domestic.

Not that the U.S. business community will change overnight when it comes to how it manages its finances-it certainly hasn't yet. Well into events around Web 2.0, supply chain finance still revolves around ample manual workarounds, laser printers, and "the check is in the mail." Boston-based research firm Aite recently issued a report indicating 70% of the business payment stream was handled by check for a total of $4 billion annually.

"Until recently, the attitude in business-to-business payments here was one of an 'if it ain't broke'..." says Cynthia Von Hollen, industry principal, financial services industry, SAP, Newton Square, Penn. "For cultural and practical reasons, executives tend to be attached to traditional, paper-based methods."

Bruce Parker, vice-president strategic planning, ACI Worldwide, New York, also understands the technical and cultural challenges, but thinks the big blockade with supply chain finance has to do with the unavoidable obstacle of Net-30 pay arrangements. (Certain B2B niches work differently but Net 30 is the norm, because, as Parker explains it, "it takes 30 days in the typical firm to figure out if you got what you ordered and if it meets specifications.")

"Banks," Parker says, will be taking on the costly, time consuming and 'dangerous' conversion to electronic when the drivers pile up and it pays to manage that risk. But the bank and corporate customer need visibility into corporate cashflows to make that transition."

The benefits, at a high level, of a more-automated payment chain are clear: better visibility into cashflows, better risk measurement, and when you are on the paying side of the b2b transaction, the ability to move quicker and benefit from perks like early pay discounts. Banks will attract loyal corporate customers if they can help them cope with a less-than-perfect back office environment.

Von Hollen adds: "It's only started to change in the last year, perhaps because companies are finally starting to think of the idea of closer to real-time visibility into cashflows as a must-do, not merely a nice-to-do."

Linda Coven, senior vice-president, head of global cash management, $6.3 billion assets Silicon Valley Bank, Santa Clara, Calif., says the subtle aspects of b2b payments make the transition to electronic flows a slow-and-steady thing. She points out that, as with every bank, each customer has unique payment flows, strategic priorities around payments timing, and capital spending limitations. (So while all would like a perfectly outfitted enterprise resource planning system and clean links between payments engines and accounting equipment in a perfect world, not everyone is in the position to do it.)

Then there are the payment practices dictated by a given industry. SVB, for instance, deals with vineyards, high-tech firms, and other clients in industries that require international transactions.

"Our client base does a tremendous amount of wire transfers," says Coven, as an example. While the Federal Reserve and others are looking into greater standardization for cross-border use of ACH, Coven notes that there are some problems with the scheme. …

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