By Carl Slabicki, Co-Head of Global Payments for BNY Mellon Treasury Services
Automation, innovative digital solutions and rich data are putting powerful new tools in the hands of corporate treasury teams. But how can treasurers reap the benefits of these solutions?
Treasurers around the globe are being actively confronted with the need to invest in a paper-to-digital transformation — whether externally from customers and vendors or internally, where there is a growing focus on unlocking operational and financial efficiencies.
This is particularly high on the agenda for treasurers in the U.S., where a significant portion of both payable and receivable activity is still made up by checks, which, in turn, introduces a host of pain points. The paper-based processing associated with these payments is not just slow, it carries a higher price tag, greater environmental impact, and potentially heightened fraud risk when compared to digital alternatives.
Yet, while the benefits of moving away from paper are clear, the transformation requires significant investment in new technologies and the associated training, as well as greater inter-company collaboration.
These challenges have meant that corporates have historically been slow to adopt digital solutions. But as demand for digital capabilities — and the benefits they bring — continues to gather momentum, how can corporates overcome these hurdles to transform their treasury function?
Key drivers in the paper-to-digital journey
Corporate treasury has traditionally been viewed as a cost center — and this has driven a sustained focus on improving internal processes, driving efficiencies and securing competitive advantage. When it comes to digital transformation in treasury, this often includes efforts to automate processes that are traditionally labor-intensive, such as paper-based payment processing, reconciliation and payment investigations. Automating these tasks not only reduces time and resource-intensive work but also helps to tackle fraud-related challenges.
At the same time, the digital expectations of customers are beginning to shift treasury priorities, with improved client experience and ease of doing business emerging as a priority. As a result, treasurers are starting to serve more of a client-facing role, as payment processes are integrated into mobile banking and online platforms through embedded finance and application program interfaces (APIs); payment data, such as account numbers and beneficiary names, requiring real-time validation; and customers being given a range of payment options to choose from. This more prominent role is a relatively new phenomenon for treasury departments, which have traditionally worked behind the scenes in a purely operational or back-office function.
To meet these evolving internal and external demands, treasurers are increasingly looking to leverage technologies to enhance treasury processes, as well as drive results for the business.
Delivering instant payment flows in the U.S.
Digitalization and instant payments can solve a lot of pain points for treasurers. Take the example of a utility company that collects bill payments from their customers each month through ACH payments.
Through ACH, these payments are generally collected from the customer within a day — but this is not necessarily the end of the story. If the payment, for whatever reason, needs to be returned, this may not become apparent for a few days — if not more — given the customer is able to claim back an unauthorized payment for up to 60 days. In addition, if the payment information is invalid or the payer has insufficient funds, the treasurer will likely not know the payment is not coming until the rejection message arrives two business days later.
Instant payment rails — such as The Clearing House’s Real Time Payments (RTP®) network and the Federal Reserve’s FedNow® Service — are emerging to help resolve some of these challenges. With instant payments, instead of having to wait a day for the payment to go through and deal with uncertainties around returns, rejections and claims, treasurers should know within seconds that the payment they have received is final and irrevocable.
The key advantage from the utility company’s perspective is higher straight-through processing levels, faster collections, simplified reconciliation, increased transparency and lower costs, while customers gain greater convenience, transparency and control of their cash flow. A win-win for all parties.
Implementing digital change
With so many new offerings — and with new payment solutions constantly emerging — it is important that treasurers begin to play a more active role in curating strategic relationships with providers that can not only help to drive efficiencies for their treasury operations, but also support other areas of their business, such as fraud management, customer experience, customer adoption and marketing efforts.
From here, there are many routes that the treasurer could take. They can look to onboard through a host of different payment providers, though this can be costly and time-consuming. Or they could work with a single provider that is already engaged and invested in a comprehensive array of payment options — from ACH and wire rails, to RTP and the FedNow Service — so they don’t have to. Whatever the chosen route, it is important that these digital treasury journeys start sooner rather than later.
Carl Slabicki will be attending AFP 2023 and moderating the panel session “Advancing from Here to There: The Paper-to-Digital Payments Journey” on October 22, 2023, at 2:30 PM PST. Attend the session to learn more about how corporate treasurers can advance their paper-to-digital journey.
Check out the full lineup of AFP 2023 sessions on the Session Explorer.
RTP is a registered service mark of The Clearing House Payments Company L.L.C.
The Financial Services logo, “FedNow,” is a registered service mark of the Federal Reserve Banks. A list of marks related to financial services products that are offered to financial institutions by the Federal Reserve Banks is available at FRBservices.org.