Pushing for more businesses to convert to electronic payments rather than using paper checks, the Remittance Coalition plans to have a working model in place next month for a business-to-business payment directory and network.
The B2B Directory Project, its working title until an agreed-upon name for the product is established, provides businesses with information about how to enable electronic payments to vendors and other payees.
The coalition, made up of members from the Federal Reserve Bank, Nacha and various banks, corporations and payments processors, has worked on the B2B Directory Project for more than a year. The Federal Reserve Bank of Minneapolis oversees the Remittance Coalition operations.
"We're trying to stop that stubborn check-writing habit," said coalition member BC Krishna, president and CEO of Mineral Tree, which provides invoice payment automation to U.S. businesses. "There is no doubt that many businesses still write checks, and it presents a real problem," Krishna said during a presentation coalition members made last week to banking and payments executives at the Chicago Payments Symposium.
The problem stems from eight billion check-based invoice payments occurring annually between businesses, resulting in $10 billion to $20 billion in costs for paper, ink, fraud analysis, corrections and other back-office actions.
"We struggle to get vendors to pay us electronically because they don't know what routing process to use," said Anita Patterson, director of treasury services and Patriot Act compliance officer for Cox Enterprises. "We like checks, because we know they work. But a directory helping to make the electronic payment process easier is becoming vital."
While pushing for a change to electronic payments, Patterson said her company has been surprised at how many vendors say they have not moved away from paper checks "because no one ever asked us" to consider an electronic alternative.
Businesses may have access to Automated Clearing House payments, wire services, MasterCard in Control, Visa Payables or PayPal, but it can still be a struggle to complete business-to-business payments because of all of the information that has to be handled to validate the payments, Krishna said.
"The B2B Directory would essentially be a public phonebook of all of the payees and their important payment information, including an electronic payments identifier," Krishna added. "You could look at it like a public utility, a comprehensive record of payees registered for an electronic payment identity."
The electronic payment identity would reveal all of the information a payee needs by declaring all of the payments the EPI owner will accept and providing details about biller portals, ACH routing codes, PayPal identifications and other key data.
The term "directory" is somewhat misleading, only in that the B2B Directory as being proposed will contain no data and also is not to be mistaken for a new payment system, said Larry Buettner, senior vice president of Wausau Financial Systems.
"We don't want hackers to get their hands on a whole directory at one time," Buettner said. "The information would not exist at one time in one place."
To ensure security, the "directory" will actually operate as a series of "federated directories with their own rules and access procedures," Buettner said. "Security is a major aspect and we'll be incorporating the best practices of the secure payments task force at the Federal Reserve."
A directory association would govern the operation, using a model in which various entities represent "nodes" that make it easier for businesses to be aware of the directory and how to become part of it, said Mike Bilski, CEO of North American Banking Company.
A bank, payment service provider or corporation can operate as a "node" that helps businesses connect to vendors.
"A node operator invites and enrolls payees and verifies the payment identities, and runs tests to validate the payment transfers," Bilski said. "Each node has a reason to exist and participate in achieving the goal of the directory."
Businesses using the system have no direct access to a node operator, but can communicate through a Central Access Node operated by a governing body, Bilski added.
When considering the best way for the directory to achieve scale, planners decided that a "build it and they will come Field of Dreams type of approach" could not be the only method in place, Wausau's Buettner said. "It was best to combine that with each payer being served by a node operator. We view it as a very open market, with many different factors for interested parties to play in and have roles."
Businesses have addressed the painfully slow B2B payment process in various manners, including dynamic discounting that provides a better price for paying faster.
Others seek ways to include more data with B2B payments to make it easier to track and solve problems.
The B2B Directory Project hopes to solve many of those same issues, but also work within the parameters of any future faster payments or B2B improvement initiatives.
"To stay with checks and paper will be to stay on the wrong side of history," Mineral Tree's Krishna said. "Any new system that comes along would help and could be incorporated into the directory."