The New York Clearing House today published a market research study that investigates the barriers to electronic payments across large, medium and small companies. The study included quantitative interviews and qualitative focus groups. Findings show that there are five key barriers and that “straight-through processing” is essential to migrating businesses from paper checks to electronic payments.
The research was conducted to determine the specific factors preventing businesses from sending and receiving electronic payments. It’s part of an initiative aimed at finding ways to make executing electronic payments as easy as paying by check.
Until now, the e-commerce focus has been on automating the supply chain, such as: online catalogues, order placement, inventory management, invoice delivery, and tracking shipments. At the end of a typical electronic transaction, however, the payment is made by check. In fact, paper-based payments still represent 84% of all U.S. Corporate payments, according to the Federal Reserve and NACHA.
The survey of one hundred fifty-five companies targeted treasurers and other financial professionals in charge of the payments area within their companies. This survey was followed by nine focus groups of executives and senior managers responsible for company finances and accounts payable/receivable. Sessions were conducted around the country including: Los Angeles, San Francisco, Chicago, Dallas, Atlanta and New York.
The survey and focus groups results consistently showed that, overall, company representatives agree that the trend is toward electronic payments, but for many there is little incentive to move quickly in this direction for five major reasons:
Most company representatives stated that lack of information with payments was a key barrier to be overcome, although they varied in the amount of information they need. Currently, one seventh of all payments are accompanied by enough electronic remittance information for automated reconciliation. The survey also found that across the revenue segments 65% of companies were “likely” to “certain” to adopt a service that integrated the remittance information with the payment.
Companies have shown they are more interested in receiving payments electronically than in sending them. This is partially due to the perceived loss of check float associated with making electronic payments. Since ACHs and wires settle within one or two days, funds are moved earlier than with checks, unless the terms of payments are renegotiated.
Furthermore, there is often an assumption that the electronic payment was a debit transaction initiated by their trading partner. Results show that while they do like using direct debits for collections, businesses do not like being debited by other companies as a form of payment. Instead, they prefer to control the timing and amount of payments. Direct debits are primarily used out of pressure from large customers or limited to well-established business partners, due to the lack of security and the difficulty in resolving issues.
The beneficiary’s bank and account number must be known in order to initiate electronic payments, Many companies said they were reluctant to give out their account numbers, which is required to initiate electronic payments. This points to an overriding security concern that many companies have with their accounts. The survey showed 38% of large revenue companies had experienced unauthorized debits to their accounts in the past six months.
Another barrier is the lack of functionality and integration in cash management and accounting systems. Existing business software is not designed to easily send or receive payments, nor is it integrated with the payment systems in other parts of many companies.
The Clearing House is addressing these barriers by enhancing its payments systems and working with accounting and cash management software providers, as well as its eleven Owner banks. As part of this work, The Clearing House has developed the Universal Payment Identification Code (UPIC), which allows companies to receive electronic credit payments from trading partners while “masking” sensitive banking information. The UPIC adds a layer of security and account protection, allowing the receiver to broadly disseminate the UPIC and eliminates concerns about fraudulent use. In addition, UPICs do not change when account information changes and remain with the company even if the company changes banking relationships.