An opportunity to improve business process

THE STRATEGY BEHIND FASTER PAYMENTS

With all the industry excitement about the introduction of faster payments technology in the United States, many fi nancial managers are asking a fair question: What’s in it for my business?

The answer may not be obvious. “Faster payments” are not so much about “paying faster.” Rather, adopting emerging technologies can be an important business process optimization strategy for companies seeking a competitive advantage.

In this paper, we’ll look at what’s driving business process optimization, how new payments technology can contribute and what you should know about the newest faster payments alternative in the U.S. – the Real-Time Payments system.

An Emphasis on Business Process OptimizationBusiness process optimization is the study of an organization’s processes to improve operations, maximize productivity and minimize needed resources. Sometimes business processes need to be re-engineered to realize company goals and respond to industry pressures. Today, companies are working hard to become more nimble in the marketplace, as they face a variety of pressures, including:

■ Increasing digital business practices

■ The need to maximize the use of human resources

■ Growth in international trade, which requires companies to achieve a broader global reach

■ The desire to improve and leverage trading partner relationships

■ The competitive necessity of operating more effi ciently

For these and other compelling reasons, companies are critically analyzing business processes ranging from contract management to hiring to invoicing and beyond. Often, adopting new technology is an important part of any business process optimization solution.

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An Important Piece of the Puzzle: PaymentsPayments is a function where process optimization can address a number of the pressures companies are facing.

For some time now, companies have been achieving greater operational effi ciency and fraud reduction by shifting from paper to electronic payments. Recently, this shift has largely involved migrating from paper checks to traditional Automated Clearing House (ACH) payments and card transactions.

But today there’s a new generation of faster payments technology to help companies tackle many of the process optimization goals noted above. For example, such technology can help automate reconciliation and maintain payment transparency, contributing to efficiency.

The United States has lagged behind other countries in the transition to faster payments. But as the country catches up, new opportunities are unfolding for American businesses and individuals to send and receive payments on a very timely basis – ultimately within seconds. These new methods can be natural fits for companies enhancing their business processes to be more competitive.

Real-Time PaymentsThe newest development on the U.S. faster payments landscape is the Real-Time Payments system. It’s the product of a multiyear effort by The Real-Time Payments system. It’s the product of a multiyear effort by The Real-Time PaymentsClearing House (TCH) to build a system that addresses the needs for safer and faster payments in an increasingly digital world. TCH is the oldest banking association and payments company in the U.S., owned by some of the country’s largest banks. Several of these owner banks, including BB&T, have introduced Real-Time Payments to the marketplace during 2018.

The Federal Reserve’s Faster Payments Task Force provided a roadmap for achieving competitive, safe, ubiquitous and faster payments, and its recommendations were instrumental in helping TCH design and build the Real-Time Payments system. (See the task force’s fi nal report issued in July 2017.1)

The Real-Time Payments system also aligns with the Consumer Financial Protection Bureau’s “Consumer Protection Principles” for faster payments systems.2 The bureau has raised concerns about existing payment systems and sees Real-Time Payments as an opportunity for fi nancial institutions to more effectively serve consumers.

The newest option in faster payments that will support business process optimization in the U.S. is the Real-Time Payments system.

1 “The U.S. Path to Faster Payments” (Final Report Part Two: A Call to Action), Federal Reserve Faster Payments Task Force, July 2017. Available at: http://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-task-force-final-report-part-two.pdf2 “Consumer Protection Principles: CFPB’s Vision of Consumer Protection in New Faster Payment Systems,” July 9, 2015. Available at: http://files.consumerfinance.gov/f/201507_cfpb_consumer-protection-principles.pdf

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Real-Time Payments enables consumers and businesses to conveniently send and receive immediate funds transfers directly from their accounts at fi nancial institutions, around the clock, 365 days a year. According to TCH, Real-Time Payments enables fi nancial institutions to “leverage a variety of features – enhanced speed, security and messaging capabilities – to create unique offerings for their retail and corporate customers.”1 See the table below for a list of potential sender and receiver benefi ts.

Real-Time Payments – Potential Benefi tsFor Senders For Receivers

Reduction in days payable outstanding

Reduction in days sales outstanding

Increase in cash on hand Lower receivables processing cost

Lowered costs from improved trade terms

Easier reconciliation when remittance information is sent with the payment

Alternative payment method instead of wire transfer Opportunity to speed up collections

Flexibility and peace of mind through a contingency payment method

Increased cash-on-hand to manage liquidity differently

What Makes Real-Time Payments Different?Development of the Real-Time Payments system was driven by customer demands for increased payments speed and transparency, greater convenience, enhanced safety and soundness, and greater value.2 Some of the characteristics setting Real-Time Payments apart from other current electronic payment methods include:3

■ Immediate availability and notifi cation. Payments will be received within seconds of the sender initiating the transaction, providing immediate funds availability. Notifi cation also will be immediate, telling receivers they have their funds and senders that a transaction was successful.

■ Payment certainty. Payments cannot be revoked or recalled once authorized by a sender and submitted to the system.

■ Credit push only. While ACH supports credit push and debit pull transactions, Real-Time Payments only supports credit push.

■ Flexible messaging options. Real-Time Payments offers multiple options for enclosing remittance information, including using the payment message, sending a nonpayment message or referencing an external remittance source.

■ 24/7 fraud detection. With the window of time between sending and posting of payments tightly compressed with Real-Time Payments, fraud detection and controls will need to be enhanced and automated.

2 “U.S. Real-Time Payments Business Playbook,” The Clearing House Payments Company L.L.C., March 2016, p. 11. Available at: https://www.theclearinghouse.org/payments/real-time-payments3 “U.S. Real-Time Payments Business Playbook,” The Clearing House Payments Company L.L.C., March 2016, p. 8. Available at: https://www.theclearinghouse.org/payments/real-time-payments

1 “U.S. Real-Time Payments Business Playbook,” The Clearing House Payments Company L.L.C., March 2016, p. 7. Available at: https://www.theclearinghouse.org/payments/real-time-payments

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The diagram below highlights how the Real-Time Payments system offers users a process optimization opportunity in a business-to-business (B2B) environment. A single B2B transaction between a restaurant and its supplier illustrates the value of immediate messaging. In this scenario, a restaurant orders produce for immediate delivery from a supplier that does not extend trade credit. The restaurant needs the produce for tonight’s dinner service, and the supplier needs to be paid before shipping the goods. Using the immediate messaging capabilities of a fully featured Real-Time Payments system, the supplier can request and receive payment almost instantly.

Business-to-BusinessReal-Time PaymentsExample

1. The supplier reviews an order from a restaurant and sends a request for payment (RFP) through its bank. The supplier’s bank sends the RFP message to the Real-Time Payments core infrastructure.2. The Real-Time Payments core infrastructure validates the request and routes it to the restaurant’s bank, which notifi es the restaurant.3. The restaurant receives the RFP that contains a “Pay Now” button. Upon selecting the button, a prepopulated payment message that includes all pertinent payment data (e.g., remittance information, payment amount, etc.) is presented to the restaurant.4. The restaurant’s bank submits the transaction to the Real-Time Payments core infrastructure, which validates the transaction details and updates the multilateral net settlement position (MNSP) for the transaction for the debtor and creditor institutions in the amount of the transaction. The payment message is sent to the supplier’s bank, which confi rms the account number is valid and accepts the payment.

5a. The supplier’s bank notifi es the supplier of payment. The supplier sends acknowledgement of payment receipt to the restaurant, confi rming the produce is on the way.5b. The supplier loads produce for delivery to the restaurant, confi dent that payment has been made.6. The supplier’s bank sends a message to the Real-Time Payments core infrastructure with acceptance of the payment and receipt acknowledgement from the supplier.7. The restaurant’s bank notifi es the restaurant, confi rming the produce is on the way, assuring the restaurant that diners will enjoy dishes made with fresh ingredients that evening.

Source: The Clearing House Payments Company LLC.

Real-Time Payments Core Infrastructure

Confi rmation of payment

Validate and route request

System validates paymentand updates MNSP

SupplierSupplier RestaurantRestaurant

5a7

3Supplier's

BankRestaurant's

Bank

216

5b

4

Using the Real-Time Payments system, the supplier can request and receive payment almost instantly.

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1 “U.S. Real-Time Payments Business Playbook,” The Clearing House Payments Company L.L.C., March 2016, p. 7. Available at: https://www.theclearinghouse.org/payments/real-time-payments

Real-Time Payments offers similar optimization opportunities in B2C transactions. For example, an insurance company adjuster can review a claim and immediately provide settlement funds to a policy holder. Or a corporation can reimburse employees for travel expenses in time for the payment of corporate credit cards.1

Real-Time Payments and Process Effi cienciesAs companies seek to achieve greater operational effi ciency and fraud reduction by shifting from paper to electronic payments, the Real-Time Payments system’s core features create a digital payment platform well-suited to improve processes.

In addition to benefi ts already discussed, other benefi cial process changes that can be realized when the system is used as an integral tool are:

■ Use of APIs (programming interfaces connecting one application to another – within or between companies)

■ 24/7/365 availability for processing payments, monitoring fraud and generating robust reporting

■ Integration of Real-Time Payments transactions with consolidated receivables, including lockbox, wire, ACH, etc., and use of databases to link aliases such as mobile numbers and email addresses to account numbers

■ Improved business recovery processes with Real-Time Payments as a contingency option

Additional Faster Payment MethodsSame-day ACH, one of the fi rst faster payment alternatives offered in the U.S., is now entering the second stage of its rollout. In addition to same-day ACH credit “push” payments, billers are able to take advantage of same-day ACH debit “pull” payments.

Same-day ACH credits are enabling companies to pay urgent invoices to Same-day ACH credits are enabling companies to pay urgent invoices to Same-day ACH creditsreceive goods or services, as well as execute same-day payroll, bonuses, advances, error corrections or last-day-of-work payments, among other uses. Companies are employing this new payment method to improve supplier and employee relationships by responding quickly to these urgent situations.

With same-day ACH debits, consumers can interact with companies by phone same-day ACH debits, consumers can interact with companies by phone same-day ACH debitsor online to authorize payment of their bills that day. For instance, insurance companies and utilities are able to collect on a same-day basis. This can improve the customer experience while reducing the volume of late or overdue payments and the additional effort required to resolve such matters.

The new, same-day ACH debit capability also offers value from a process-optimization perspective. Same-day settlements allows companies to improve cash fl ow by providing a more accurate, real-time view of balance sheets, incoming payments and any potential cash shortages.

Another new, faster and digital payment option is Zelle®1. At this point, Zelleis primarily a person-to-person (P2P) payment network. Zelle offers simplicity and convenience. With a mobile banking app, all you need to deliver money to someone within minutes is their registered mobile number or email address. In addition to P2P payments, some companies are beginning to use Zelle to enable business-to-consumer (B2C) payments, a trend that is sure to grow.

Taking Advantage of the New LandscapeIt’s been a long time since there were any major new developments in business payment options. But here in the U.S., with the rollout of same-day ACH, a new digital P2P option like Zelle gaining traction and offering promise for business applications, and Real-Time Payments, the payments landscape is rapidly changing.

The new, faster payments alternatives are a response to what many consumer customers and business trading partners have been asking for, and they offer signifi cant opportunities to improve business processes and achieve competitive advantage.

To learn how these new payment methods can support your business strategy, talk to your BB&T relationship manager or treasury management consultant.

The new, faster payments alternatives offer signifi cant opportunities to improve business processes and achieve competitive advantage.

BB&T, Member FDIC. Only deposit products are insured. © 2018, Branch Banking and Trust Company. All rights reserved. 01097_Rev. 7-1-18

1 Must have a bank account in the U.S. to use Zelle. Transactions typically occur within minutes between enrolled users. If a recipient is not yet enrolled with Zelle, they must enroll to receive their payment. Once their enrollment is complete they’ll typically receive that payment within minutes. Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.