In-house retail payments processors are more efficient than most third-party providers. Or so claim Treasury Strategies in a study of the subject.
The in-house processors that participated in the study processed nearly twice as many items per direct operations FTE.
According to Treasury Strategies, the strong efficiency of in-house processors suggests that third-party providers must do more than compete on price to motivate firms to outsource retail remittance processing. “Once a shop gets to a critical mass, the efficiency benefits of processing a single work type trump economies of scale,” says David Robertson, partner, Treasury Strategies.
Retail remittance processing remains a highly competitive business. Study results show the operations of half of third-party providers broke even or produced a loss. Profitability is driven primarily by work type and quality. The most profitable operations have the highest percentage of one-check/one-coupon work. They also have higher levels of encoding errors, suggesting that providers are not adequately compensated for the incremental cost of handling nonstandard work or providing superior quality.
Quality, efficiency and scope of automation vary considerably among processors. The study indicates that individual site operations can be significantly improved through ongoing process improvements and technology.
Most retail remittance processors remain committed to the business. They are investing in ways to eliminate paper, automate manual activities and implement process management systems. Key initiatives include ARC truncation, RCK returns processing, MICR reference match for no coupon transactions, customer exception adjudication via the Internet, and electronic file receipt or OCR scanning of list-pay remittances.
The 90-page Treasury Strategies Retail Payments Study provides an exhaustive analysis of the cost, efficiency, quality, profitability and strategic initiatives of in-house and third-party processors of retail remittances. Study participants included in-house processors and large and niche third party processors representing a broad range of industries including insurance, credit cards, telecommunications and consumer finance.