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Pandemic Pushes Some Companies Away From Checks, Toward Real-Time Payments

By May 12, 2020 No Comments

U.S. Bank sees more clients opting for RTP in a bid to gain control and improve forecasting.

The COVID-19 pandemic appears to be persuading more companies to consider abandoning paper checks and start using electronic payment rails to pay bills — even though many corporate treasurers do not view speed as a major incentive to switch. That insight emerged during a presentation by U.S. Bank at a recent NeuGroup meeting it sponsored. 
 
Old, suboptimal habits in the US. Here’s some context for where US business stands now: Companies with $1 billion or more in revenue still make 39 percent of payments with checks, and the figure is higher for smaller companies, according to the Association of Financial Professionals’ 2020 Payments Fraud and Control Survey.

  • Among payment methods, checks are the most susceptible to fraud.
  • Forty-four other countries already have instant, electronic payment methods. 

The new normal. With most corporate mailrooms functioning minimally, businesses are trying alternatives to checks, including a system from The Clearing House called Real Time Payment (RTP), which U.S. Bank trailblazed as one of the earliest adopters.

  • “Over the last month we’ve seen the greatest number of clients opting for RTP,” said Anuradha Somani, a payment solutions executive in global treasury management at U.S. Bank. 
  • The timing is ripe, she said, since electronic payment rails have emerged that enable transactions to carry much more data, improving working capital, security, and analytics such as cash-flow forecasting.  

“Just in time” payments. Meeting participants agreed that payment speed was not the only priority, and Ms. Somani said that RTP’s key improvement is flexibility and control – meaning, no longer initiating a payment today and having to wait one or two days for settlement.

  • “It’s the ability to control payments at the precise time you want,” she said, noting that such control and the irrevocability of incoming RTPs, available 24/7/365, can dramatically improve cash forecasting. 
  • The treasurer of a major industrial company said, “What intrigues me is if I can have better information, and there’s something truly analytical about this to help enhance forecasting abilities.”

Data continuity: John Melvin, working capital consultant at U.S. Bank, called RTP “the biggest payments infrastructure change in the last 40 years.”  That change is the extensive data that transactions carry through the RTP network of connected banks.

Data-light ACH payments often receive remittance information through outside methods such as email or fax, which often requires searching for a payer’s identity in order to post the transaction. RTP’s request for payment (RFP) function instead allows billers to alert customers that payments are due by sending a message containing all the relevant biller information, facilitating reconciliation.

  • Because RFP-prompted payments require payers’ approval, they dramatically reduce fraud, and “models can be created to reconcile payments, eliminating the need for shared service centers purposed for reconciliation,” Melvin said.

While the pandemic is likely to be one of the most challenging crises businesses will ever face, proactively taking stock of payments strategy can help plan for the future, according to U.S. Bank. And it says that no matter what the initial driver is – the pandemic, speed, data, superior control or the ability to forecast better, faster payments are here to stay. 

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Antony Michels

Author Antony Michels

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