If you are looking more carefully at cash flow after the collapse of Silicon Valley Bank, you are not alone. One place to look is automating accounts receivable (AR).

With the increasing digitization of all aspects of finance, AR sticks out for its antiquated processes. Most businesses still do AR manually, and changing from that process has not been top of mind. But it should be.

Automating AR has the potential to increase cash flow, save businesses a lot of money, improve customer service, and be more environmentally friendly. Digitizing AR also makes it possible to use artificial intelligence and machine learning to parse AR data and find patterns that can be used to improve the business in surprising ways.

In a recent PaymentsJournal podcast, Steve Murphy, Head of Commercial and Enterprise Payments at Javelin Strategy & Research, and Bob Purcell, CFO of Billtrust, discussed the many benefits of automating AR. Many people think that it isn’t worth the cost or effort to automate AR and that there are no synergistic benefits for a business by doing so. Their conversation counters that assumption.

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Financial Resilience Starts With Perfecting AR Cash Flow

The pandemic and the recent bank collapses have reanimated the importance of managing working capital.

The pandemic led to a significant disruption of supply chains and increased uncertainty in the economy. The bank collapses have also highlighted the importance of working capital management as businesses have struggled to find alternative sources of financing. Many companies were caught off-guard by the bank collapses and have had to scramble to find alternative funding sources to maintain their operations.

In preparing for a downturn, companies should focus on what they can control and make their businesses more efficient. Shifting from manual AR to automated should be at the top of the list.

Manual AR tasks inhibit cash flow and increase operating costs. Automated AR processes improve cash flow and reduce costs. 

“We’ve reached an inflection point in our profession,” Purcell said. “Finance leaders across our customer base are beginning to understand that digitally transforming AR and adapting technology bolsters our financial resilience.”

This shift has been a long time coming.

“AR software penetration is only around 24% of companies today...

Direct Deposit has been a part of our banking system for more than two decades, and employers commonly use it to issue employees their wages directly into their bank accounts. Today, Direct Deposits can be used to pay taxes, bills, and other charges.

PaymentsJournalNacha Launches Campaign to Reach Millennials on the Benefits of Direct DepositPaymentsJournal Nacha Launches Campaign to Reach Millennials on the Benefits of Direct DepositPaymentsJournaljQuery(document).ready(function ($){var settings_ap21296139 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"21296139",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_404989_2",settings_ap21296139); }catch(err){ console.warn("cannot init player", err); } });

“Direct Deposit has been around for quite some time and it’s very well received throughout the United States,” said Debbie Barr, Senior Director of ACH Network Rules Process & Communication at Nacha. “Over 93% of American workers use Direct Deposit. We know the federal government uses Direct Deposit for tax refunds and EIP [economic impact payment] payments. But what we really wanted to know was to dig down deeper into one segment of the population: We decided to look at the millennials.”

Nacha, the payment system organization that manages the ACH (Automated Clearing House) Network, recently launched a campaign to encourage millennial workers to use Direct Deposit to receive their wages directly into their bank accounts. The survey consisted of 700 U.S. consumers ages 22–34. Half of the millennials surveyed were W-2 workers and the other half were gig workers. Here are the findings.

“What we found was that 97% of those surveyed have a bank or credit union account,” said Barr. “This means that they already have the tools they need to receive Direct Deposit. Eighty-three percent are already receiving their pay by Direct Deposit. Seventy-one percent said they primarily keep their money in their bank or credit union account. Almost all of them have deposit accounts. The vast majority have savings accounts. That’s a great thing as we think about Split Deposits. The top uses for Direct Deposits are salary, wages, receiving those tax refunds, and EIP payments.”

Barr believed receiving Direct Deposit creates a gateway to the many other benefits of using the ACH Network. “Receiving Direct Deposit creates this great foundation for using ACH for other things, like your bill payment,” she said. “The more you use ACH, you get this level of trust because you see the benefits of ACH, the reliability, the convenience.”

Barr continued, “With the trust level, we found that 80% of those who received their salary with Direct Deposit consider it highly trustworthy, giving it an 8, 9, or 10 out of a scale of 10. So that is exciting for us. It builds that foundation that moves them into using ACH for other things like Direct Payments. Seven out of 10 said they use Direct Payment for at least one bill each month.

With FedNow launching this July, successful implementation of real-time payments systems will require banks to test both the technical and operational side of their operations. In a previous discussion with PaymentsJournal, Form3 touched on the importance of banks having not only the technical aspects in place, but also transaction reporting and operational considerations.

Testing early is key to ensuring that both real-time payments (RTP) and FedNow functionalities operate at their peak, delivering on the benefits they set out to bring. During a recent PaymentsJournal podcast, Miriam Sheril, Head of Product, US, at Form3, and Steve Murphy, Director of Commercial at Javelin Strategy & Research, discussed why testing — which is typically an afterthought for many banks — should be more of a priority.

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The Importance of Being Agile

The race to ubiquity for real-time payments should not just involve throwing money into the latest technology to support real-time payments. Careful testing early on should be at the forefront before full implementation can happen successfully.

“It’s not just having the best technology and technology that’s fit for purpose, but it’s also how you go about your entire project and life cycle of getting that technology in place,” said Sheril. “Testing becomes an afterthought for banks – and for all companies, frankly.”

“They build it, they do their documentation, they work on the operations around it, they implement the ecosystem [of tools needed (like a UI)] around the new solution, and then start testing it end-to-end and find issues — whether it’s a technical error that’s wrong or the procedure that’s wrong,” she said. “[They find those issues] late in the game, which means they have to go back and fix it. It’s more costly, it takes more time, and it’s difficult.”

“For real-time, if you wait until the end to do all this testing, you’re going to end up having an issue. Your project might end up getting pulled if it costs you double the amount of time to fix that. Being an afterthought is a mistake in this new agile world. For real-time payments specifically, you can’t do it so late because it’s 24/7, it’s all brand new.”

According to Sheril

Checks have seen a steady decline in use — with a 2021 Federal Reserve survey finding a decrease of 7%-8% in check volume annually — but the same clearing processes must still be performed by financial institutions. This reduced volume is prompting financial institutions to consider ways to minimize costs and increase efficiencies in the item clearing and settlement process.

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The Current State of Item Clearing

When Check 21 was instituted in 2004, there was great excitement about the new process of handling checks electronically. However, as with any innovation that involved image and electronic processing of checks, it was expensive. Over time, as more financial institutions adopted this technology, the costs did eventually decrease as these processes became more efficient and refined.

“I think the death of the check was greatly exaggerated,” said Tony Rosetti, Director of Fiserv Clearing Network at Fiserv. “Checks are still going to exist. And as the volume continues to decrease, financial institutions are at a tipping point where prices will increase.” 

“Checks aren’t going to die,” said Brian Riley, Director of Credit and Co-Head Of Payments at Javelin Strategy & Research. “They’re going to decrease — I agree with that. But there are still times when consumers and businesses need checks, and that brings out the importance of engineering your clearance network properly.”

“You shouldn’t just set that and forget it. As volumes go down and pricing models change and the whole dynamics change, it’s really a good time to understand what’s going on in your clearance process and to make sure that it’s really managed and engineered to the best possible way.”

Banks currently have a few options for their check-clearing needs. These include the Federal Reserve, private sectors, and private exchanges.

According to Rosetti, the private sector was the catalyst that drove the costs of check clearing down through its less expensive channels over the years. Although the Federal Reserve basically sets industry pricing, they have increased fees over the past few years. The pricing increase is actually a participation fee that is assigned to every financial institution.

What Should FIs Expect from Their Clearing Network?

When it comes to the check-clearing process,

Artificial intelligence (AI) and biometrics are revolutionizing regulatory compliance in fintechs and banks by providing more accurate and efficient methods of identifying and preventing fraudulent activity, as well as streamlining compliance processes.

Traditionally, compliance has been a tedious and time-consuming process, requiring manual checks and reviews of transactions and documents. But with the help of AI and biometrics, compliance is becoming a lot more efficient and effective. In a recent PaymentsJournal podcast, Micheal Sheehy, Chief Compliance Officer at Payoneer, and Marco Salazar, Director of Technology and Infrastructure at Javelin Strategy & Research, discussed the future of meeting compliance challenges.

PaymentsJournalThe Importance of AI and Biometrics in Regulatory Compliance in FinancePaymentsJournal The Importance of AI and Biometrics in Regulatory Compliance in FinancePaymentsJournaljQuery(document).ready(function ($){var settings_ap15495301 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"15495301",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_410093_29",settings_ap15495301); }catch(err){ console.warn("cannot init player", err); } });

The Future of Compliance Challenges

The biggest challenge for fintechs in compliance is the cost of implementing Know Your Customer (KYC), a process fintechs use to verify the identity of their clients and assess their potential risks for money laundering or financing terrorism. Fintechs may need to go through a KYC process when onboarding new customers, setting up new accounts, or conducting certain financial transactions. This typically involves collecting and verifying personal and financial information, such as name, address, government identification, and employment status. Fintechs may also need to monitor their customers’ activity over time to ensure ongoing compliance with KYC requirements.

“Especially when you want to be global and operate in multiple jurisdictions, you know, the different KYC nuances can be costly,” explained Sheehy. “The repercussions of not having an adequate KYC program or adequately funded compliance programs are significant. [That] there are $10 billion in just KYC fines last year globally just shows you how serious regulators are taking KYC.” Furthermore, different countries are developing different regulations so staying on top of everything is a challenge.

“Criminals are always trying … to find loopholes in the system,” Sheehy said. “So [compliance] is about being proactive. This involves having processes and procedures in place to analyze the trends that you’re seeing not only in your own transactions, but also at a more macro level within the environment that you operate in.”

As a company that interfaces with regulators and fintechs looking to meet those r...

With the upcoming launch of the FedNow Service, real-time payments continue to be a topic of discussion as demand grows among customers and businesses. More financial institutions are seeing the importance of enabling a range of real-time use cases to remain competitive and enhance the customer experience.  

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Where Real-Time Payments Stand in Availability 

Less than 10 years ago, real-time payments capabilities were limited to specialized and sometimes costly options, such as wire transfers. Since the launch of Zelle in 2017 and The Clearing House RTP® network a few years ago, real-time payments have become increasingly accessible.  

“Fiserv has about 1,200 financial institutions that have launched some form of real-time payments,” said Tim Ruhe, Vice President of Real-Time Payments at Fiserv. “And a lot of that is Zelle person-to-person payments. And now most of those financial institutions are looking at how they expand their real-time payments capability for consumers and businesses and how they connect to The Clearing House and/or the FedNow Service so they can launch a whole new generation of real-time payment capabilities.”  

Use cases grow when financial institutions partner with technology solution providers.  

“Here in the U.S., five years ago we launched the RTP network in order to provide true real-time payments all the way from the front-end customer experience to the back-end clearing and settlement,” said Keith Gray, Vice President of Strategic Partnerships at The Clearing House. “We have 300 banks and credit unions that are offering some form of real-time payments via RTP to their customers, receiving and sending as well in many cases. 

“That covers about 65% of the U.S. account base. If you’re a company using the network, you can reach about 65% of your customer base with a real-time payment right now. And that number continues to grow every week as we add new financial institutions through technology partners like Fiserv and many others. The types of use cases continue to grow and evolve. Things like same-day payroll, where you work your shift and get paid today, are a growing trend.”  

Gray also mentioned that Square and Elavon use the network to allow their merchants to instantly transfer money from merchant accounts into their bank accounts.

In April 2023, Visa is set to update its requirements around reporting fraud, with the goal of reducing friendly fraud chargebacks and helping merchants retain more of their revenue. These new requirements, known as Compelling Evidence (CE) 3.0, let merchants bring evidence that contradicts cardholder fraud claims before chargebacks are filed. By sending in compelling evidence via Visa’s Order Insight platform, merchants can effectively block chargebacks from being initiated and prevent the advance of fraud claims.

CE 3.0 is based on the idea that if a cardholder previously made purchases that weren’t disputed from the same business, the current transaction that is being claimed as fraud really isn’t fraud. Under the new protocol, if a merchant can prove that the same customer data (such as device fingerprint and internet protocol, or IP, address) that are involved in a chargeback case are also associated with two previous transactions that were undisputed (with the same card and merchant), Visa will automatically deny the fraud claim. 

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Furthermore, under the new guidelines, merchants can also submit this type of evidence after a chargeback has been initiated.  If a merchant responds to a chargeback in full compliance with the initiative guidelines, Visa guarantees the chargeback will be overturned. A ruling in the merchant’s favor will return revenue and reverse the original fraud claim.

A recent podcast hosted by PaymentsJournal sheds light on what the implementation of Visa CE 3.0 will mean for merchants, acquirers, and customers. Featured speakers in the podcast are Robert Painter, Sales Manager in the Dispute and Chargeback Management department at Kount, Domenic Cirone, VP of Acquirer Solutions at Midigator, and Brian Riley, Director of the Credit Advisory Service at Javelin Strategy & Research.

Before the update, merchants combatting fraud claims only had to provide one previous undisputed transaction, and it could come from any time. The new standards require providing two transactions, both being at least 120 days old. Companies that want to hit the ground running in April need to ensure they are collecting the customer information they need. The podcast, which was released on [ TBD  ], comes at a good time because it helps all parties understand how fraud claims will be resolved differently, and prepare accordingly.

Many factors drive the need for more accurate, timely, and proactive liquidity management, including increased regulation and as the continued shift to faster payments.

During a recent PaymentsJournal webinar, Jo Wright, Director of Solution Enablement at Fiserv, and Steve Murphy, Director of Commercial Payments at Javelin Strategy & Research, spoke about the key ways banks can better manage their liquidity in 2023.

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Basel IV and Continued Regulation

Banks are required to maintain a certain level of liquidity, which ensures that they can meet the demands of depositors, creditors, and regulators in times of financial stress. Amid moves to introduce further regulation, one key focus has been the development of Basel IV.

Basel IV has been developed by the Basel Committee on Banking Supervision, an international forum of central banks and regulators from around the world. It aims to improve the resilience of the banking sector by reducing the risk of financial crises.

According to Wright, implementation of Basel IV has been moved to Jan. 1, 2023[JE1] , with implementation taking place over a five-year period.

“That’s the timeline at the moment,” Wright said. “As we know, these timelines sometimes have delays. [But Basil IV] is meant to strengthen the international banking system and standardize the rules from country to country.”  

The Move to Faster Payments

In today’s volatile and interconnected financial markets, banks need to be able to manage their liquidity in real time to minimize the risk of losses as well as adapt to a financial system that is increasingly dominated by real-time payments.

“Everything today is moving faster, including payments,” Wright said. “With the changes to the payments rails and movement towards immediate payments, banks aren’t working anymore with the restrictive cutoff times and waiting for next-day confirmation of settlements. They don’t have to wait for their statements, their closing statements, or their balances.

“The faster payments can be made, the faster liquidity and cash-balancing changes need to be visualized and monitored by the banks. This can allow interest debts to be settled and interests to be accumulated. This move to immediate payments requires 24/7 monitoring and the ability to know what is ...

The number of payment methods keeps expanding, driving a higher volume of payments and further complicating data management processes for businesses. The strength of any organization lies in its ability to efficiently manage data, and this is where automation would make the most significant impact.

An AutoRek report, “Payments Industry Outlook 2023,” highlights the findings of an organizational survey, identifying key challenges, priorities, and readiness for real-time payments in the ever-changing payments sector.

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Key Findings in the Payments Industry Outlook 2023 Report

One of the top findings of the survey is the need for businesses to accommodate real-time payments. Aside from speed, the key benefits of real-time payments are that they are accompanied by critical data as well as reasons for exceptions.

“Modern consumers expect instant digital payments,” said Nicholas Botha, Global Payments Lead at AutoRek. “As such, real-time payments are set to become ubiquitous for both national and regional payments networks as authorities and central banks alike continue developing real-time infrastructure to accommodate consumer demand.” (Page 25 of the report)

Currently, real-time payment infrastructures can be found live in more than fifty markets, with more than twenty more to come.

“The focus on real-time payments in the U.S. is obviously becoming something that has not been previously looked at,” Botha said. “Whereas in regions like the UK and the EU, this has been a focus for some time. There has been a transition in focus for the next few years into that sort of real-time payments market, shifting attention from customer acquisition to more middle- and back-office focus.”

Botha continued: “What we try to understand through the reports is in terms of payment: where these organizations are depending on the size of their company, how they are managing certain core functions of their business to be effective in the payments market.”

Although many companies recognize the need for real-time payments, with over 85% of them being ready for the technology in less than 12 months, it is no easy task. The biggest bottleneck can be seen in most back-offices, which can be attributed to legacy infrastructures.

A significant imbalance can be seen in the way back-offices now work. Usually, they create batches of fund transfers that will be processed at pre-determined periods instead of in real-time. Therefore, reconciliations and settlements can take place only at the end of one or more intervals of processing.

ISO 20022, a new global standard for electronic messaging between financial institutions, was initially created to give the financial industry a common platform for sending and receiving data about payments.

However, financial institutions should not look at ISO 20022 as merely a compliance burden to be met, but an opportunity to serve clients better and gain a competitive edge. The amount of data related to payments that will be transmitted under ISO 20022 standards is so robust that it gives banks the ability to know their clients better and create new products and services tailored to their needs.

The robust and granular data will also aid financial institutions in fighting fraud, allowing them to detect potentially fraudulent patterns in payments and stop them before they are completed.

To learn about the importance of ISO 20022 for financial institutions, what benefits it offers, and what it means for the future of payments going forward, PaymentsJournal sat with Andrew Foulds, Director of Global Clearing Solutions, Product Management, EMEA at Fiserv, and Steve Murphy, Director of Commercial and Enterprise Payments Service at Javelin Strategy & Research, for a podcast discussion on this topic.

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This blog is the second of a two-part series covering that podcast. Part 1, which covered why the ISO 20022 standards were delayed and what financial institutions can expect around their implementation, can be found here.

The Many Benefits of ISO 20022 Compliance

Foulds observed that when it comes to ISO 20022, “The focus on compliance with these regulatory changes can make institutions lose sight of what the business benefits are. These messages contain a lot more data and richer data. That allows us to look at and examine this data and turn it into information, which can then be used to create new services for clients.”

Foulds added that banks can take the new data and “turn it into something useful and add to the services you are already providing now.”

For example, ISO 20022 data can be used to help business clients better manage liquidity and cash flow. ISO 20022 data can also be applied to supply chains to help solve supply chain network problems.