Helping Your Small Business Customers Adopt Electronic Payments

Transcription

1 Helping Your Small Business Customers Adopt Electronic Payments Mary Hughes, Federal Reserve Bank of Mpls. Stephanie Hansen, Venture Bank Navigating Payments 2015 October 8, 2015

2 Mary Hughes Senior Payments Information Consultant Federal Reserve Bank of Minneapolis Federal Reserve Banks Payments Information & Outreach Office standards specialist; Chair of X9C Corporate Banking Subcommittee Federal Reserve representative to the EMV Migration Forum Supports industry relations activities with business associations & end users Active on Remittance Coalition work groups Provide financial services to depository institutions & U.S. gov t Supervise & regulate financial institutions Establish & execute U.S. monetary policy Maintain a stable financial system & contain systemic risk 2014 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 2

3 Stephanie Hansen Senior Vice President & Chief Deposit and Cash Management Officer Serves as a member of the bank s executive management team Provides oversight to the Deposit and Cash Management Services area of the bank. Responsible for the training and development of all Deposit Officers and staff members. Responsibilities also include cash management product research, implementation, and sales Founded in November 2001 Serves the Twin Cities marketplace with locations in Bloomington, Eagan, Golden Valley and Roseville Experts in small business banking Typical client has revenues of $1 million- $40 million Focused on delivering value and supporting our clients long term success

4 AGENDA 1) About the Small Business Payments Toolkit 2) U.S. Payment Trends 3) Case Studies: Why Move to ACH? 4) Educating Small Businesses about Payment Fraud The Small Business Payments Toolkit has been created by the Remittance Coalition & is intended to be used as a resource. Views expressed here are not necessarily those of, & should not be attributed to, any particular Remittance Coalition participant or organization. Views are not intended to provide business or legal advice, nor are they intended to promote or advocate a specific action, payment strategy, or product. Consult with your own business & legal advisors. 4

5 What is the Small Business Payments Toolkit? FREE resource to be leveraged by small business (& their bankers & advisors) Not copyrighted OK to modify using Adobe Professional Encourages adoption of electronic B2B payments plus payment/remittance information exchanges Created by the Remittance Coalition Link to Toolkit 5

6 Contents of Small Business Payments Toolkit Payment Types Explained Understanding ACH Working with Your Banker Fraud Prevention & Mitigation Tips Resources Glossaries of Payment Terms Credit & Debit Card Resources ACH Resources General Small Business Resources Fraud & Data Security Resources 6

7 Payment Type Pros & Cons Pros Legacy System Widely accepted No need for Bank acct numbers Pros Highly secure Near real time Certain delivery Business Check Cons Higher costs Manual handling Greater fraud frequency Cons Fees charged to both parties Need routing & acct # Pros Much lower fees Higher automation lower handling Much lower fraud Wire Transfer ACH Cons ACH credit not final until settlement Need routing & acct # Credit & Debit Cards Pros Save time Cost savings Reduce paper Pros Easy to use, widely accepted No need for routing & acct # Internet Bill Pay Cons Some payments still via check Identify payee to system Cons Costs higher equipment & processing Fees incurred for reversal 7

8 U.S. Payment Trends 8

9 Checks in billions B2B Check Usage is Stagnant 35 Number of Checks Written by Counterparty C2C C2B B2C B2B Source: Federal Reserve Payments Studies published in 2007, 2010, and See for reports. 9

10 Checks Are the Leading Payment Type among Businesses % of Payment Transactions Made by Corporations, by Payment Type Wire, 8.1% Cards, 6.6% Other, 0.3% ACH, 20.4% Check, 64.6% Source: 2013 Phoenix-Hecht Treasury Management Monitor 2014 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 10

11 Trend: Increased Use of E-Payments for B2B Payments 78% Change in Use, by Payment Type 68% 48% 51% 21% 26% Increased Stayed the Same Decreased 1% 1% 6% ACH P-Cards Checks Source: 2012 PayStream Advisors Electronic Supplier Payments Pushing Forward with Buyer Initiated Payments 2014 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 11

12 Top Factors Driving Electronic Payments Usage by Biz Less costly Better data security Ease of integration with AP Supplier acceptance Better working capital mgmt. Better/complete remittance info. ACH P-Card Convenience/ease of use Better fraud protection ability 0% 20% 40% 60% Source: 2012 PayStream Advisors Electronic Supplier Payments Pushing Forward with Buyer Initiated Payments 2014 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 12

13 Case Studies: Why Move to ACH? 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 13

14 ACH Some Considerations Secure & reliable Especially useful for batch payments After initial set-up fees, ongoing bank fees are modest Fraud risk is lower than checks, but businesses must monitor ACH debits received ACH payments can include remittance data (tells what payment is for) Implementation issues Requires underwriting o Other options (e.g. pre-fund) Workflow and control issues o Must manage & secure payment identity of each payee 14

15 When Does it Make Sense for Small Businesses to Use ACH? Making payments: Payroll (use payroll cards for those without bank accounts) Recurring bill payments such as rent & utilities Paying taxes Employee expense reimbursements Vendor payments Receiving payments: Recurring monthly payments such as software as a service fees, property rental, cleaning services, garbage pick-up, snow removal, etc. To conduct business with entities that pay by ACH 15

16 Primary Motivators to Move to ACH Vary by Company The decision to move to ACH is usually driven by one or multiple objectives: Cost Efficiency Safety Better Controls 16

17 CASE STUDY # 1- CFO: WE ARE WRITING FAR TOO MANY CHECKS AND I M GETTING CARPAL TUNNEL SYNDROME FROM SPENDING 2 HOURS EVERY FRIDAY SIGNING CHECKS, NOT TO MENTION I CAN T AFFORD SPENDING THAT AMOUNT OF TIME SIGNING CHECKS! 17

18 Case Study # 1- Story This company s business model includes purchasing products from lots of different vendors. They reached out to all of their vendors in an effort to find out who would be willing to accept an electronic payment. They developed, internally, the ability to send an at the time they sent their payment, which increased the adoption of ACH as a form of payment among their vendors. While their primary motivator was efficiency, their implementation of ACH also saved them money and allowed them to institute better controls. 18

19 Check to ACH Payment Savings April 2013 Activity Type- Description Volume Per Unit Cost Total Cost Checks Paid 484 $ 0.20 $ Positive Pay Issued Items 421 $ 0.05 $ ACH Transactions Originated 1087 $ 0.10 $ $ April 2014 Activity Type- Description Volume Per Unit Cost Total Cost Checks Paid 174 $ 0.20 $ Positive Pay Issued Items 173 $ 0.05 $ 8.65 ACH Transactions Originated 1377 $ 0.10 $ $ Feb 2015 Activity Type- Description Volume Per Unit Cost Total Cost Checks Paid 85 $ 0.20 $ Positive Pay Issued Items 97 $ 0.05 $ 4.85 ACH Transactions Originated 1147 $ 0.10 $ $

20 CASE STUDY # 2- NEW CFO WE NEED TO FIND EFFICIENCIES IN OUR PROCESSES! 20

21 Case Study # 2- Story This company writes a lot of checks. They were a recent victim of check fraud! Their motivation was twofold: efficiency and protection. They re planning to start contacting vendors and offering better payment terms to those willing to switch to ACH. (In the interim, they ve implemented Positive Pay). 21

22 Cost Savings Opportunities Using ACH Companies Ave # of Checks Issued Per Mo Per Check Paid $0.20 Each Estimated Cost of Check Issuance Total Cost of Issuing Checks Savings if 25% Converted to ACH Savings if 50% Converted to ACH Savings if 75% Converted to ACH Company #1 807 $ $ $ $ $ $ Company #2 406 $81.20 $ $ $ $ $ Company #3 133 $26.60 $ $ $36.30 $73.70 $ Company #4 16 $3.20 $16.00 $19.20 $4.40 $8.80 $13.20 Company #5 1 $0.20 $1.00 $1.20 $1.10 $1.10 $1.10 Company #6 15 $3.00 $15.00 $18.00 $4.40 $8.80 $12.10 Total 1378 $ $1, $1, $ $ $1,

23 Cost Reduction in Positive Pay Fees Ave # of Checks Issued Per Mo Positive Pay $0.05 Per Item Savings if 25% Converted to ACH Savings if 50% Converted to ACH Savings if 75% Converted to ACH Company #1 807 $40.35 $10.10 $20.20 $30.25 Company #2 406 $20.30 $5.10 $10.15 $15.25 Company #3 133 $6.65 $1.65 $3.35 $ $67.30 $16.85 $33.70 $50.50 Company #4 16 $0.80 $0.20 $0.40 $0.60 Company #5 1 $0.05 $0.05 $0.05 $0.05 Company #6 15 $0.75 $0.20 $0.40 $0.55 Total if Positive Pay on All Accts 1378 $68.90 $17.30 $34.55 $

24 CASE STUDY # 3- CONTROLLER WE WANT TO BE ABLE TO USE ACH FOR EMPLOYEE REIMBURSEMENT AND PAY VENDORS! 24

25 Case Study # 3- Story This company has a new CFO that is looking for efficiencies. They got their employees to authorize ACH credits to their accounts for expense reimbursement very quickly. They are contacting the vendors to find out who would be willing to accept an electronic payment. In the interim, they are going to get started by reimbursing employees via ACH. They were very interested in CONTROLS, specifically the ability to have secondary review of changes to their ACH template and secondary approval of the actual transfers. 25

26 Obstacles to Implementation Vendors who prefer check payment vs ACH Lack of resources Appetite for change Too busy growing to take time to implement change 26

27 ACH- Making the Case Educate the right people, who have the ability to make decisions. Lay out the business case for how moving to ACH will provide value to the customer. Know your audience- What is his/her primary motivator? Cost Efficiency Protection 27

28 Tools to Help Small Businesses Move to ACH New Customer Onboarding tool that communicates: responsibilities, timeline, and team of contacts for implementation of ACH Example ACH Consumer and Company Authorizations ACH Risk and Control Discussion- Best Practices for the Bank and Company Emphasis on Dynamic Process to adapt to customer s changing needs 28

29 Educating Small Businesses about Payments Fraud

30 Payments Fraud The Toolkit contains best practices & tips to help small businesses combat payment-related fraud and manage risks: Avoid purchasing card fraud page 24 Bank services that can combat fraud page 25 Tips on how to avoid accepting fraudulent cards pages Educating and training your employees to avoid payments fraud page 28 Avoiding data breaches page 29.AND MUCH MORE! All payment methods carry the risk of fraud 30

31 Check Fraud Examples Mail theft Counterfeit checks Alterations Duplicate deposits Precautions Implement strong internal controls & procedures around AR/AP functions Leverage tool & processes from your bank and service providers; enact best practices (e.g., positive pay, reverse positive pay) Consider not accepting checks at all Limit number of checks issued 31

32 ACH Fraud Examples Unauthorized debits Insider fraudulent transactions Hacker attacks (phishing, etc.) Precautions ACH Debit Limit debit activity to a few accounts Address exceptions timely Secure bank account info Use ACH blocks, filters, positive pay, & debit alerts ACH Credit Use dual control Require due diligence of 3 rd party processors 32

33 Fraud Involving ACH that Affects Businesses Account Takeovers Mule accounts are emptied shortly after money is received & abandoned Once the money is sent, it is hard to get it back Using compromised online banking credentials, fraudster initiates funds transfers (via ACH credits or wires) to mule accounts 6. Mule Accounts Emptied & Abandoned 5. Transfers Funds to Mule Accounts via ACH or Wire 1. Target Victim (Business) How Account Takeovers Work (Example) 4. Collect & Transmit Data Fraudster targets business by way of phishing, spear phishing, social engineering, or computer hacking Malware Installed Online Banking If successful, malware is installed on computer; e.g., key logging or screen shot capabilities Victim visits online banking; logs in using normal processes Malware collects & transmits data (including online banking credentials) back to fraudster 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent

34 What Should Small Businesses Be Doing To Avoid Fraud? Check accounts daily Use fraud protection services (e.g., debit blocks/filters; positive pay) Ensure fraud prevention & detection is an organizational objective Set policies, establish procedures, monitor compliance, & take action on exceptions 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 34

35 What Should Small Businesses Be Doing to Avoid Fraud? continued Leverage cost-effective tools & processes to address vulnerabilities Educate & train employees on fraud prevention Monitor & measure fraud attempts and losses Update defenses; best practices today may not be best practices tomorrow Secure your bank account information, lock up paper documents, limit access to sensitive online data Use strong passwords & change them often 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 35

36 Points of Interaction Are Potential Points of Compromise Online Phishing Spear Phishing Spoofing Hacking Social Engineering Telephone Smishing Vishing Impersonator Fraud Social Engineering Eavesdropping Physical Hardware, Documents, & Mail Device Tampering Dumpster Diving Theft Employee Misuse 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 36

37 Take Action The toolkit was developed as a FREE resource USE IT AND SHARE IT Version 2 of the toolkit is currently being developed Topics include: o EMV migration o Emerging/Alternative payments o Authorization forms o More on ACH returns o Case studies Suggestions on content are welcomed! 2015 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 37

38 Questions 38

39 Resources Get the Small Business Payments Toolkit at: Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 39