The latest research from the Association for Financial Professionals (AFP) underscores the fact that there’s no turning back on electronic business-to-business payments. The key finding in the 2007 survey, released in October and sponsored by the Electronic Payments Network (EPN), showed a decline in the usage of paper checks for B2B payments to 74% from 81% just three years earlier.
Across the board – ACH, wire, purchase cards – the survey showed that businesses both large and small increasingly prefer electronic payments for the reasons that bankers have been preaching all along: less fraud, lower costs and increased efficiency. Moreover, the research found that businesses will commit even more to electronic payments and less to checks in the near future.
The AFP’s findings are clearly good news for businesses and financial institutions. But for banks in particular, they are also a strong call to action to support two ACH solutions that will accelerate the move toward electronic payments even faster: The EPN STP 820 (STP 820) and the Universal Payment Identification Code (UPIC).
Solutions Whose Time Has Come
The UPIC permits businesses to request electronic payments with a unique bank account identifier – without divulging sensitive banking information. The UPIC protects the confidentiality of account and routing number and provides bank customers with a new way to receive secure, electronic ACH credit payments.
The STP 820 remittance standard for ACH transactions complements the UPIC by enabling invoices to be reconciled electronically. The STP 820 facilitates straight-through-processing (STP) by allowing businesses to send and receive payments without the costly manual intervention that exists today. The STP 820 eliminates existing inefficiencies and creates the basis for an all-native electronic payments environment.
UPIC: Creating Secure Payments
A UPIC helps companies achieve their goal of executing more payments electronically by removing a key barrier: The growing concern among businesses to keep sensitive account information confidential.
Issued by banks to their customers, a UPIC puts that problem to rest. A UPIC looks and acts like a bank account number, and is used in conjunction with a universal routing and transit number (URT). The UPIC and URT can be printed on invoices and displayed on the Internet without exposing the organisation to potential fraud. This ready access to the recipients’ electronic payment address enables electronic payments to be made on the spot. Any paying organisation can use this information to initiate an electronic payment.
With a UPIC, only ACH credits can be initiated. A UPIC cannot be used to debit accounts, and this safeguard reduces the risk of unauthorised ACH debits, demand drafts and fraudulent checks. The importance of this protection can’t be overstated. An AFP study in 2006 found that 72% of those companies surveyed experienced attempted or actual fraud.
One of the key features of a UPIC is its portability. If financial institutions merge or an organisation moves its banking relationship, the UPIC stays with that entity – only the underlying bank account information changes. A portable UPIC minimises the cost and inconvenience of communicating new account information to hundreds or even thousands of trading partners.
More than 283,000 UPIC payments totaling over US$13bn have been made since it was introduced four years ago, and the volume is growing strongly. Transactions and dollar volume through the first six months of 2007 surpassed the total for 2006. UPICs have been issued to organisations in 32 industry sectors, including manufacturing, telecommunications, utilities, education, real estate, medical technologies, financial services, associations, government agencies, agriculture, and a variety of service industries.
Removing Friction in Payments Value Chain
Equally as important as the UPIC in promoting electronic payments is the STP 820. This facilitates electronic payments by creating a single remittance standard for ACH transactions that can be used by all business entities. The STP 820 rationalises the complexity of the ANSI 820 electronic payments standard and identifies 10 existing ANSI data elements including two mandatory fields, payor name and the biller account number assigned to the payor.
The other eight data elements are invoice number, invoice date, gross invoice amount, amount paid, discount, adjustment amount, adjustment reason, and PO number for each invoice being paid. Consistent data in a structured format enables accounts payable and accounts receivable systems to work together seamlessly.
As a result, the STP 820 enables accounting and cash management software providers to create electronic payment modules with a remittance standard that they can code to and implement cost-effectively. This resolves the current problem in which trading partners cannot send and receive electronic payments with remittance information.
The industry’s support of the STP 820 is strong and growing. The STP 820 is supported by NACHA, Federal Reserve and AFP. Leading cash management and middleware companies have either announced support or are in the process of implementing the standard. Those companies include Fundtech, S1, Financial Fusion, Metavante, ACI, NexTec Group (reseller of Great Plains Dynamics, Solomon, Sage), Treasury Software, Coastal Software (reseller of QuickBooks and Peachtree) and Axway. A number of financial institutions are including the STP 820 standard into their proprietary cash management packages as well. For the first time, the STP 820 has provided the foundation for financial institutions to build the on and off ramps for small and medium sized companies to take full advantage of the ACH for their electronic payments needs.