A growing number of commercial cash managers expect to substitute electronic payments for checks soon, and more banks are positioning themselves to help.
Consumers have been quicker to switch. Movement by businesses has been uneven; many are happy to receive payments electronically — they get the money faster that way — but fewer want to pay electronically, since doing so would shorten their float.
But bankers say that attitudes are changing in corporate finance offices — a recent survey bears them out — and that the Sarbanes-Oxley Act could speed the change.
“The pieces are falling into place. The stars are in alignment, we think,” said J. Steven Stone, a product management director at PNC Financial Services Group Inc. of Pittsburgh.
Fully 75% of business-to-business payments are still made by paper check, according to a 2004 survey reported in January by the Association for Financial Professionals, a Bethesda, Md., trade group for treasury management executives.
But 28% believe their companies are “very likely” to shift most payments to electronic systems in the next three years — against 9% in a survey four years earlier.
MasterCard International’s TowerGroup research unit in Needham, Mass., said in a January report that corporate payments are reaching a “tipping point.”
A number of major banks have been preparing for such a change for several years, though some of the early successes have been in specialized markets with distinctive issues.
PNC, for example, won a contract in 2002 to build an electronic remittance system for the Department of Veterans Affairs, the largest integrated health-care provider in the United States, to receive payments from insurers. The change was driven the Health Insurance Portability and Accountability Act of 1996, which set electronic transaction standards for doctors, hospitals, insurers, and others in health care.
Mr. Stone said the system is now processing 1.7 million claims a month on behalf of a half-dozen large health-care providers. Today, however, a much broader swath of corporate America is under federal mandate to improve financial controls.
Susan Feinberg, a senior analyst in TowerGroup’s wholesale banking group, said in an interview that Sarbanes-Oxley has become a “front-of-mind issue” for corporate treasurers, prompting them to pursue initiatives to tie their big accounting systems to their banks’ computers.
American companies have “invested in the technologies that would enable them to do more,” Ms. Feinberg said. “They just haven’t gotten around to it.”
Bankers report much the same thing.
Bank of the West in San Francisco, owned by the French financial giant BNP Paribas, is a top 50 automated clearing house originator. John M. Curtis, a vice president of the bank and its senior product manager for electronic payment solutions, said it is seeing “a major shift also in B-to-B processing.”
Mr. Curtis said in an interview last week its electronic data interchange transactions were up 20% last year. EDI is an older format in which the companies’ computers are directly linked together; it is best suited to large companies that have extensive dealings with similarly large customers and suppliers.
For Bank of the West the challenge has been to attract smaller companies and the accounts-payable operations of big ones to e-payments, Mr. Curtis said.
“Banks are going to have to provide both sides of the equation to their corporate clients,” he said. Companies receiving paper checks “definitely want to collect faster,” he said. “The challenge is … those who are paying.”
Persuading them can be difficult.
Not only must a company develop a business case for changing its payables process, but its finance office must change its way of thinking about cash management. In many cases “they’re still trying to play the float game, but float is going to be a thing of the past,” Mr. Curtis said.
Bank of the West is encouraging its corporate clients to weigh the 20-cent cost of generating a check against the 3-cent to 4-cent cost of initiating an ACH payment.
What the company gives up in float it can recover through better control of cash flow, he argued. “If I’m the person initiating the payment, I have more control over when it hits my account.”
Bank of the West also has begun to work with the electronic fund transaction processor ACH Direct of Cathedral City, Calif., on a line of electronic cash management products.
Mr. Curtis said Bank of the West has five or six customers — consumer-facing as well as B-to-B — that are ready to test the product when it becomes available early in the second quarter.
PNC has taken a different tack, in health care and the broader corporate market, where purchasing cards are playing a bigger role.
“It’s a rapidly growing business opportunity, because there are business benefits that accrue to the payer,” Mr. Stone said. Buyers that use purchasing cards can save money, defer payments, and consolidate their bills, he said.
Bank of New York Co. also predicts a blend of ACH, wire transfers, and card transactions. Alphonse J. Briand, a managing director in its global payments and cash management unit, said Bank of New York’s corporate clients “are looking at a variety of options, such as cards, in finding the right level of cost, the right level of timeliness, and the right level of risk.”
Bank of New York is developing a global remittance program in conjunction with a group of international correspondent banks. Mr. Briand said the program could be used by immigrant workers whom employers pay using payroll cards.
Under the program, which is not in commercial operation, such workers could transfer funds from the payroll card to a bank in their home country by logging on to its Web site. Though it is only indirectly an aspect of corporate cash management, Mr. Briand said, it is an example of the trend in transactions.
“We’re looking to create as many options as possible for that payment,” he said. “Our interest is in making sure that the right payment is on the right rails.”
