US corporates are waking up to the fact that digital payment systems are not just preferable but essential as the world finds different ways of working. Carl Slabicki, Head of Strategic Payment Solutions at BNY Mellon Treasury Services, believes the phrase ‘the cheque’s in the post’ will mean nothing a generation from now.
It’s a payment system that Alexander Hamilton (one of America’s founding fathers) would have been familiar with when he formed the Bank of New York in 1784. But is the paper cheque (or check as Hamilton would have known it), finally being shredded? Carl Slabicki, head of strategic payment solutions at BNY Mellon Treasury Services, which started life as the Bank of New York, is convinced it is – and that it has the current challenging environment to thank for speeding up its demise.
Make no mistake, even in 2020, cheques remain one of the primary methods for firms to make and receive B2B payments in the States. And, of the 159 million payments made by the Internal Revenue Service (IRS) by early June under The Coronavirus Aid, Relief, and Economic Security (CARES) Act, nearly a quarter (35 million) had to be sent as a cheque in the post.
But banks are itching to get rid of them: they’re expensive, time-consuming and not great for the environment. And digitisation will likely see the back of them. With a largely institutional client base, including insurance, healthcare, corporate, telecom and utilities, BNY Mellon has for some time been pushing to bring more efficiency to the business payments ecosystem through digitisation. For example, it was the first bank to originate a payment through the US real-time payments system, the RTP Network.
Now, dramatic changes to working practices caused by the pandemic lockdown, principally the huge increase in remote working by its corporate clients, has brought things to a head. First came the enforced move to home working; then the realisation by corporates that digital processes were both effective and efficient. That opened up a conversation that BNY Mellon had been keen to have with them for a while.
“Everyone moving to working from home has really given us a chance to have a little bit more of a stepped-back, strategic conversation with our clients, to say ‘listen, maybe the way a lot of companies were doing things doesn’t make sense anymore’,” says Slabicki.
He credits real-time payments solutions, such as RTP and Zelle, with changing the legacy banking system’s use of tools such as batch methods of processing payments at set times during the traditional Monday to Friday working week.
“Under the current pandemic, a lot of our clients, such as insurance companies, were saying ‘I want to make sure I can get a payment to a policyholder instantly’. Or they wanted to process a refund for a medical payment, or pay an invoice for medical services and make sure the money got to the hospital in time, so that the hospital’s receivables didn’t dry up. Speed really matters in those cases and availability matters,” he says.
“So, one of the really groundbreaking things we’ve seen, whether it’s real-time payments setting a new foundation for the market to move money continuously, or networks like Zelle giving a lot of our corporates real-time access to move money into individuals’ accounts, the speed, availability and transparency around the payment has increased across the board.”
But Slabicki also believes that, in the short-term at least, US banking will need to continue to use traditional payment methods, including cheques, ACH (electronic, bank-to-bank payments) and wire, when and where appropriate. “Our goal is twofold,” he says. “To make sure the traditional methods are efficient, then make sure we have the latest capabilities to help our clients take that first step into the future – and then make sure they’re paired together as a holistic solution.
“We know our clients are going to continue to need batch processing, we know they’re going to want a foot in the new space, to start leveraging things like application programming interfaces (APIs), real-time payment capabilities, alias-based payments and some of the new validation tools out there. Our job is to make sure they can use both of them with us.
“We try to take a very consultative approach and say ‘this is what we’re learning, this is what we’re seeing, this is what we’re building. This is the roadmap’. We try to be ultra-transparent, to help our clients learn with us and let us advise them as we go into that space and adapt these new capabilities. We’re piloting a lot of these across the board with clients to help us learn as we go, too, because we’re doing it for the first time, just like a lot of our clients are.”
The digital transformation of the payments ecosystem has allowed a whole new way of working to develop in the US and across the world, with major implications for banks’ working practices. Companies based on the gig economy model – Uber, for example – need their banks to carry out multiple payments to workers daily, representing a paradigm shift from the traditional processing of the weekly or monthly payments run.
“The way corporates are interacting with banks is moving away from SFTP batch-file models to more of an API, real-time, machine-to-machine type
of connectivity with their bank,” says Slabicki. “The gig economy has brought it to light, but I think it is moving into the mainstream corporate world as well.”
The increasing use of APIs is also allowing banks like BNY Mellon to work much more closely with their corporate clients to improve their customers’ experience. Slabicki says: “The fact that APIs can integrate those capabilities right through to the frontend has opened the door for us to be part of that user experience, which wasn’t possible in the past.”
Learning the lessons
Slabicki acknowledges that many countries in the European and Asian marketplaces are considerably further advanced in developing a faster payments system than the US. He says: “We spent a lot of time talking to our peer banks in a lot of those markets about their experience, years before us, rolling out real-time payment and API capabilities to their own clients. We’re trying to take as many lessons as we can from them when we look to do the same here in the US market.
“Now what we really need to do is bridge the gap to interoperability globally. How do you get to a point where you can move money crossborder, 24/7, 365? How do you take all those great capabilities to crossborder money movement, and multi-currency and foreign exchange?
“I think the important thing is not just to make sure we’re sharing best practice to help each other out in our respective markets, but also to make sure we’re all moving down the same path, so that when we do start jumping crossborder and tying those things together, we’re in similar places, using similar formats with similar standards. So that we have a framework that’s going to make it easier for us to interoperate at a point in the future.”