Developing a Payments Strategy
- 1. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Developing a Payments Strategy Treasury Alliance Group LLC
- 2. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Payments Matter • They are a big, complicated business – Global payments revenue more than $1.7 trillion in 2014 and forecast to exceed $2.3 trillion by 2020* – FinTech is piling in • Also a big opportunity – To reach new customers through mobile and other channels – Achieve internal cost reductions through alternative channels and processing efficiencies • A big risk – Systems or counterparty failures – Cybercrime and fraud • And the lifeblood of any business – Without the ability to pay and receive money there can be no business Page 1 *Source: McKinsey
- 3. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Session Outline • Context of the payments challenge • Understanding the payments issues at your organization • Developing a strategy • Summary Page 2
- 4. ©2016 – Treasury Alliance Group LLC – All Rights Reserved CONTEXT OF THE CHALLENGE
- 5. ©2016 – Treasury Alliance Group LLC – All Rights Reserved • Traditional view of P2P and OTC – Payments are a single element towards the end of each process • Changing due to greater focus on working capital management, systems integration and increase in payment options – Payments impact all elements of the value chain, demand cross-functional teams Receive Goods and Invoice Send Payment Reconcile and Account Send Purchase Order Credit Application Negotiate Payment Terms Select Supplier and Goods Source Suppliers Analyze and Review Broad Functional Impact Page 4 Order to Cash Ship Goods and Send Invoice Receive Payment Reconcile and Account Receive Purchase Order Manage Credit Negotiate Sales Terms Quote Price Source Customers Analyze and Review
- 6. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Expansion of Payments Categories • Traditional payment strategies developed for a world of RTGS wires, batch settled ACH, paper checks and card-present payments • The new world includes: – RTGS wires – Same-day ACH – Image processing of paper – Multiple points of card acceptance – Mobile wallets – Peer to peer payments – Cryptocurrency – …and more • Payments are an integral part of the marketing proposition Page 5
- 7. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Internal Processing • Diversity of payment instruments challenges legacy processes – Vendor file may not be able to accommodate required details for new payment channel – Customer file may not be able to capitalize on automated cash application capabilities – Legacy systems architecture restricts potential for single-use card payments or use of virtual accounts – Rigid business processes limit opportunity to leverage supply chain finance • The cumulative impact of poor internal processing capabilities places limits on the businesses ability to seize new opportunities Page 6
- 8. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Expansion of Risks • Systems – SaaS solutions present an array of issues from security to stability to customizations • Counterparty – Counterparties include all banks and FinTech providers between the payor and the payee – Not always transparent • Foreign exchange – Inherent volatility – Multiple channels • Cybercrime – The cost of Cybercrime is debatable but huge – Manifestations include malware, ransomware, phishing, smishing, vishing and pharming – Personal information, intellectual property and money are all targets • Fraud – Check fraud is still good business, fraudulent chargebacks are a growth industry • Reputation is an asset that is hard to protect – Mitigants exist for other forms of risk Page 7
- 9. ©2016 – Treasury Alliance Group LLC – All Rights Reserved PAYMENTS ISSUES
- 10. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Defining the Current State - 1 Understand what you are doing now, there are three parts to the task 1. Activity 2. Stakeholders – Internal – External 3. Financial – Costs – Benefits Page 9
- 11. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Defining the Current State - 2 • Volume and value – The number of payments and receipts by type, currency and processing method – The value of those payments and receipts • Banks, processors and counterparties – The banks and processors currently acting as payments intermediaries – Your customers and vendors • Cost of payments processing – Explicit fees paid to banks and processors – Internal costs associated with payment origination, cash application and error adjustments – Fraud and other losses in the payments process – Opportunity cost – Damage to reputation due to issues with accuracy, reliability and timeliness of payments • Current state must include all entities within the enterprise – Ensure that all bank relationships are captured, regardless of degree of centralization or decentralization – All functional entities such as human resources, manufacturing and corporate travel should be included Page 10
- 12. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Assessing the Current State • Develop a matrix view of current state elements – Value and volume by element, e.g. payment method, bank counterparty, transmission channel • Stratify results as: – Enterprise critical, where failure or compromise could jeopardize ability to operate as going concern – Material, where cost would be noted impact on financial results – Other • The assessment results are a key input for the enterprise payments strategy Page 11
- 13. ©2016 – Treasury Alliance Group LLC – All Rights Reserved DEVELOPING A STRATEGY
- 14. ©2016 – Treasury Alliance Group LLC – All Rights Reserved High Level Blueprint - 1 Three broad steps to follow 1. Establish an accountability point for payments 2. Balance internal requirements 3. Develop a plan Page 13
- 15. ©2016 – Treasury Alliance Group LLC – All Rights Reserved High Level Blueprint - 2 • Create payments committee – Appoint payments lead for enterprise, single point of accountability – Form cross-functional team • Prioritize functional requirements – Business need for multiple payment channels versus processing cost versus financial risk – Business need for local bank versus liquidity benefit of regional bank • Develop enterprise payments business requirements • Transformation plan – RFPs for required services • Long term reporting and monitoring Page 14
- 16. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Payments Committee • Enterprise payments lead – Senior level individual with deep understanding of the organization and ability to communicate with C-level as required • Committee members/stakeholders – Treasury – Sales and marketing – Accounting – A/P and A/R – Risk management – IT – Other as needed Page 15
- 17. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Functional Requirements • Listing of issues such as multiple channels for marketing reach, streamlined banking architecture for counterparty risk • Balance using information from current state assessment • Create a consolidated statement of business requirements Page 16
- 18. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Implementation Roadmap Page 17 Payments Strategy 3) Timing 1) Skills 2) Resources 4) Project Management
- 19. ©2016 – Treasury Alliance Group LLC – All Rights Reserved SUMMARY
- 20. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Strategic Readiness • How do you answer these questions – What do payments really cost you, include internal and third party costs – Do your payment practices allow you to reach all corners of your potential market, are you losing business due to a missing channel – Who makes payment decisions; you, internal stakeholders, your customers or your competitors • Strategic readiness is a perfect score • Payments demand strategic readiness – Achieved through a current and coherent strategy – There is no single strategy that will fit everyone Page 19
- 21. ©2016 – Treasury Alliance Group LLC – All Rights Reserved Questions? Page 20 Mark K. Webster, CCM, CPA, Partner Phone (216) 932-1678 mark.webster@treasuryalliance.com Daniel L. Blumen, CTP, Partner Phone (630) 717-9728 dlblumen@treasuryalliance.com Treasury Alliance Group LLC www.treasuryalliance.com