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					     Moving corporate america to
     electronic payments
     How can financial institutions position their
     payments business for tomorrow’s world?
     Native electronic payments offer banks unique
     opportunity to provide value-
     added services for
     business customers.
     By Rossana
     Salaris.




     I
        n today’s rapidly changing marketplace, if financial institutions                       Despite both systems’ acceptance in the marketplace, neither
        focus their strategy on creating native electronic payments, they’ll              processes a significant share of electronic payments between business-
        be more likely to improve the profitability of their payments opera-              es. The reason is that while consumer paper checks have been declining
     tions and avoid the distractions of the latest new technology or silver              steadily, the number of B2B checks has remained constant at about four
     bullet solutions.                                                                    billion annually.
          A native electronic strategy has the potential to pay enormous long-                  For financial institutions, then, one of the most significant opportuni-
     term financial and risk management benefits by reducing paper-based                  ties to reduce costs and improve the efficiency of their payments operations
     transactions. Equally as important, a native electronic payments strategy            is to put the elements in place to migrate B2B payments to native electron-
     will enable institutions to transition from interim solutions, such as check         ic payments using the ACH and Wire systems.
     conversion to ACH and image exchange.
                                                                                          The opportunity ahead
     Making the most of your payments strategy                                                 Financial institutions have two solutions that can help them achieve
          For financial institutions, the twin pillars of an electronic payments strat-   that increasingly important objective: The EPN STP 820 (STP 820) and the
     egy are the Automated Clearing House (ACH) payments and wire transfers.              Universal Payment Identification Code (UPIC).
          Secure, cost-effective and popular, the ACH is today the workhorse                   The STP 820 is an emerging standard that enables invoices to be rec-
     of the US payments systems, touching millions of business, consumers                 onciled without manual intervention. The STP 820 establishes a remittance
     and financial institutions each day. ACH systems such as the Electronic              information standard that can be used to both send and receive payments
     Payments Network (EPN), which is operated by The Clearing House, and                 to facilitate straight-through-processing (STP). For both corporate America
     FedACH, which is operated by the Federal Reserve Banks, are highly re-               and small businesses, the STP 820 eliminates the inefficiencies in paper
     liable and particularly useful for transactions that don’t require immedi-           checks, minimizes the potential of fraud and creates the basis for native
     ate settlement.                                                                      electronic payments.
          Wire transfer systems such as CHIPS, the private sector network run                  The UPIC complements the STP 820 by allowing financial institu-
     by The Clearing House, and FedWire, which is run by the Federal Reserve              tions to provide their customers with a unique identification number to
     Banks, are used primarily by business for large-value dollar payments both           receive secure, electronic ACH credit payments. The UPIC
     domestically and abroad. Wire transfers are typically the system of choice           (www.upic.com) permits a business entity to request electronic pay-
     when immediacy is of paramount importance.                                           ments to this unique identifier without divulging their sensitive bank-


76   www.usfst.com
ing information thereby protecting the confidentiality of their account         ment amount, purchase order, adjustment and discount information. The
and routing number.                                                             incorporation of these data elements permits the electronic payment to
     These industry-wide initiatives are being led by EPN, which is work-       flow seamlessly between the buyer's cash management system to the sell-
ing with financial institutions, software developers, trade groups and gov-     er's accounts receivable system.
ernment agencies to promote the adoption of these standards and                      S1 is another major cash management package that recently imple-
remove the traditional obstacles that have impeded the growth of native         mented the STP 820. Other cash management package providers such
electronic payments.                                                            as Financial Fusion, BankLink, and Metavante have also agreed to adopt
                                                                                the standard and are in various stages of implementation. NexTec Group,
The barriers to native electronic payments                                      a leading provider and reseller of business management solutions, has
     Both the STP 820 and UPIC were developed in response to research from      implemented the standard and is offering the STP 820 for Microsoft’s
The Clearing House and The Association for Financial Professionals (AFP).       Great Plains Dynamics accounting software. Great Plains is likely to be
     In its 2004 Electronic Payments Survey, AFP identified the following       followed by Solomon, and Sage’s MAS500, the leading accounting pack-
barriers to electronic payments:                                                                                          ages for fast-growing and mid-
                                                                                                                          tier companies.
       • Accounts Payable and Accounts Receivable systems are not inte-                                                        Treasury Software, a leading
            grated with electronic payments systems.                                                                      provider of middleware payment
                  • The lack of a single standard format for remittance in-                                               solutions, has also implemented
                    formation makes it difficult to reconcile invoices and                                                the EPN STP 820. Treasury
                    payments.                                                                                             Software’s ACH Universal will ac-
                • Trading partners do not send or receive electronic pay-                                                 cept data from any major ac-
                  ments with sufficient remittance information.                                                           counting      package        from
                                                                                                                          QuickBooks to PeopleSoft. ACH
     The study found that the paper component of the payment can be re-                                                   Universal provides a secure,
moved from the process, and the electronic payment and remittance infor-                                                  easy-to-use solution for automat-
mation can flow through the payments system without manual intervention                                                   ed B2B transactions using the
or errors. The study also noted that the information necessary for sellers to    Rossana Salaris                          STP 820 format.
automatically post the payment already exists in electronic form in the
buyer’s accounts payable system.

Standards simplify the complex                                                      Rossana Salaris
      The STP 820 eliminates the barriers to electronic payments by creat-
                                                                                    Rossana Salaris is SVP of The Clearing House Payments
ing a single remittance standard that can be used by all business entities
                                                                                    Company, responsible for the Electronic Payments Network,
and makes it easy to send pertinent information to reconcile payments
                                                                                    the nation's largest private sector ACH processor and re-
electronically. The STP 820 standard is supported by NACHA, BITS and AFP.
                                                                                    gional ACH association, serving nearly 1600 financial institu-
      The STP 820 rationalizes the complexity of the existing ANSI 820 elec-
                                                                                    tions nationwide. Salaris is on NACHA’s Board of Directors,
tronic payments standard. The STP 820 identifies 10 existing ANSI data el-
                                                                                    has served on numerous NACHA task forces and councils
ements – two mandatory fields, payor name and the biller account number
                                                                                    and is an accredited ACH professional (AAP). She also man-
assigned to the payor. It also contains up to eight data elements, including
                                                                                    ages Education Services. She can be reached at
invoice number, invoice date, gross invoice amount, amount paid, discount,
                                                                                    rossana.salaris@epaynetwork.com.
adjustment amount, adjustment reason, PO number for each invoice being
                                                                                        Established in 1853 to simplify the exchange of
paid. Consistent data in a structured format enables A/P and A/R systems
                                                                                    checks and improve the efficiency of the payments
to work together seamlessly.
                                                                                    system, The Clearing House is a world leader in the
      As a result, the STP 820 enables accounting and cash management
                                                                                    payments business. It has come a long way from
software providers to create electronic payment modules for a remittance
                                                                                    exchanges using bags of gold ‘specie’ it offered in 1853
standard that they can code to and that can be implemented cost effective-
                                                                                    – but the central mission remains the same – to
ly. This resolves the current problem in which trading partners cannot send
                                                                                    facilitate the efficient, safe and sound clearing and
and receive electronic payments with remittance information.
                                                                                    settlement of payments between financial institutions.
      The industry’s adoption has been encouraging. WebBANKER, a prod-
                                                                                    The Clearing House provides payment services for
uct offered by Fundtech (www.fundtech.com), has become the first cash
                                                                                    check, electronic check, ACH and wire transfer. It also
management software to implement the standard. Fundtech allows banks
                                                                                    includes industry forums to discuss and take action in
to offer small and mid-sized companies a way to create electronic payments
                                                                                    issues critical to its owners.
that include invoice and remittance data. Corporate users are able to trans-
mit payment information along with invoice number, invoice amount, pay-


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        Coastal Software, a reseller of QuickBooks and PeachTree, is imple-    to be made on the spot. Any paying organization can use this informa-
     menting the EPN STP 820 with its first QuickBooks customer.               tion to initiate an electronic payment.
                                                                                    With a UPIC, only ACH credits can be initiated. A UPIC cannot be
     UPIC: Creating secure payments                                            used to debit accounts, and this safeguard reduces the risk of unautho-
          Another barrier identified in AFP’s 2004 survey was the reluctance   rized ACH debits, demand drafts and fraudulent checks. The importance
     to reveal bank account information. This finding was consistent with a    of this protection can't be overstated. The Payments Risk Study conduct-
     study The Clearing House Payments Company (TCH) released in 2002:         ed by AFP in March 2006 revealed that 79 percent of organizations with
                                                                                                                               annual revenues greater
                                                                                                                               than $1 billion and 54 per-
                                                                                                                               cent of organizations with
                                                                                                                               annual revenues below $1
                                                                                                                               billion report payments
                                                                                                                               fraud in 2005.
                                                                                                                                    One of the key features
                                                                                                                               of a UPIC is its portability. If
                                                                                                                               financial institutions merge
                                                                                                                               or an organization moves its
                                                                                                                               banking relationship, the
                                                                                                                               UPIC stays with that entity –
                                                                                                                               only the underlying bank ac-
                                                                                                                               count information changes.
                                                                                                                               A portable UPIC minimizes
                                                                                                                               the cost and inconvenience
                                                                                                                               of communicating new ac-
                                                                                                                               count information to hun-
                                                                                                                               dreds or even thousands of
                                                                                                                               trading partners.
                                                                                                                                    In 2006, more than
                                                                                                                               80,000 UPIC payments total-
                                                                                                                               ing $4.7 billion have been
                                                                                                                               made. Transactions and dol-
                                                                                                                               lar volume through the first
                                                                                                                               six months of 2007 have sur-
                                                                                                                               passed the total for 2006.
                                                                                                                               UPICs have been issued to
                                                                                                                               organizations in 32 industry
                                                                                                                               sectors, including govern-
     The Remaining Barriers to ePayments and                                                          ment, manufacturing, telecommunications, utilities,
     Straight-through Processing.                            “In 2006, more                           education, real estate, medical technologies, finan-
          UPICs provide a secure account identifier                                                   cial services, associations, government agencies,
     that allows companies to receive electronic
                                                           than 80,000 UPIC                           agriculture, and a variety of service industries.
     credit payments without divulging their sensi-        payments totaling                               The Wire Transfer Systems are evaluating incor-
     tive banking information. A UPIC also allows                                                     porating the UPIC and STP 820 into its formats.
     companies to proactively provide their account
                                                            $4.7 billion have                         Once this is accomplished, the US will have a cohe-
     information without worrying about security or           been made”                              sive strategy for moving business payments to an
     portability issues. This is especially important                                                 electronic payments environment.
     because of the rising incidence of fraud. UPICs                                                       Together, both the UPIC and the STP 820, repre-
     enable the banking industry to protect both itself and its customers.     sent real opportunities for the financial services industry to move toward
          A UPlC looks and acts like a bank account number, and is used in     an all-electronic environment for B2B payments. To succeed in that key
     conjunction with a universal routing and transit number (URT). The UPIC   business objective, financial institutions need to demonstrate clear lead-
     and URT can be printed on invoices and displayed on the Internet with-    ership, while remaining committed to educating the marketplace about
     out exposing the organization to potential fraud. This ready access to    the benefits of electronic payments. The industry stands poised to make
     the recipients’ electronic payment address enables electronic payments    that vision a reality.


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