" class="no-js "lang="en-US"> EXCLUSIVE: "Chequeing Out?" - Carl Slabicki and Isabel Schmidt, BNY Mellon in 'The Fintech Magazine'
Thursday, June 13, 2024

EXCLUSIVE: “Chequeing Out?” – Carl Slabicki and Isabel Schmidt, BNY Mellon in ‘The Fintech Magazine’

The US is a long way behind much of the rest of world in weaning itself off paper transactions. Carl Slabicki and Isabel Schmidt from BNY Mellon explain what it’s doing to accelerate it

“The cheque has been with us 400 years and it’s going to be around for some time yet, so don’t exclude it from your payments strategy.”

That’s the key takeaway from a paper published in 2021 by staff from the US Federal Reserve and ECCHO, The Clearing House’s cheque imaging and clearing service. It probably wasn’t what most banks – deep into an industry-wide digitisation strategy – expected or wanted to hear.

But, despite their best efforts, the US remains more reliant on paper cheques than most other nations. And, although digitisation has seen their usage steadily decline over recent decades, there’s compelling evidence that reports of their pending death have been much exaggerated.

The 2021 Federal Reserve Payments Study shows that, while cheque volumes declined by 51 per cent between 2010 and 2020, total value fell by only 10 per cent – the average amount for a cheque written rising to $2,091.This meant that, in 2020, cheques accounted for 6.51 per cent of the number of payments but 22.91 per cent of their value.

Their persistence is abetted by greater availability and takeup of remote cheque deposit services since the pandemic; and their usefulness is sustained by some unique characteristics, according to the Fed’s study – like the ability for anyone with a bank account to make a payment without knowing the recipient’s details, universal acceptance and convenience, cost effectiveness for existing users, and their capacity to carry unstructured or complex data alongside the payment.

But they also have drawbacks, not least environmental – the paper industry being the fourth largest polluter on the planet. There is also diminishing cheque-handling expertise among financial institutions as they move to digital channels.

“It’s getting more costly and more onerous [to process them],” confirms Carl Slabicki, co-head of global payments for BNY Mellon bank’s treasury services. “Cheques are still extremely prevalent across the US. Whether you’re talking business-to-business payments, consumers paying each other or their bills, there are still billions of cheques written annually here. But think about everything that’s involved in that – a paper bill going in an envelope, getting in a truck, going to an individual, someone manually opening it, writing a cheque, ripping off a slip, putting it back in an envelope, putting it back in a truck to send it back, billions of times every year.

“BNY Mellon alone processes around 300 million cheques annually, so a lot of our focus is on digital innovations and how we can educate our clients to accelerate the move away from paper.”

Across the country, that move is clearly well under way. McKinsey statistics show that, in 2020, three-quarters of people in America used some form of electronic payment, and usage increased even among the over-55s, with a Mastercard survey also demonstrating a similar trend among small businesses – a quarter of which had reduced their reliance on cheques.

“The expectations and needs of clients have changed with digitisation. Those needs are very obvious and understandable to everyone in the consumer and small business spaces”

Isabel Schmidt, BNY Mellon

BNY Mellon is doing its best to capitalise on the stars finally aligning around enabling schemes like the ISO 20022 messaging standard, the SWIFT GO service which applies the same speed and data capture to low-value transactions as its gpi does to high-value corporate ones, and a pilot immediate cross-border (IXB) payments scheme collaboration between EBA Clearing, SWIFT and The Clearing House.

Many of these erode cheques’ points of difference, but, as with all change, the US needs to reach a tipping point before nailing the coffin lid on four centuries of history. And that seems some way off, particularly in commercial payments, despite estimates suggesting businesses lose between $4 and $20 processing and mailing every single cheque.

“Some stats show that, in the US business-to-business space, over 40 per cent of transactions are sent via cheque, including large businesses paying each other multi-millions of dollars of invoices. There is a huge opportunity to digitise such payments,” continues Slabicki. “In the billing pay space, we’re involved in real-time payments innovations that are helping our corporate clients send e-bills to their customers using their phones. Customers view them through their secure banking app, schedule the payment and then pay electronically.

“In the retail space, there’s innovation in person-to-person payments, through digital wallets. One by one, we’re trying to help corporates and aggregators adopt those methods. Because, if you look at where a lot of the big cheque processing comes from, a lot of the banks and large businesses are the ones driving it.

“We’re trying to not only help businesses adopt the new digital capabilities, but also take a consultative approach to help them engage with their customers, to incentivise different behaviour and make it convenient for consumers and business partners to get something on their phone in two clicks, rather than sitting down at their desk and writing out a piece of paper.”

According to a recent report by PYMNTS and payment provider Plastiq, half of small- to medium-sized businesses (SMBs) would prefer to receive B2B payments either via real-time payment rails or same-day automated clearing house (ACH), but payers’ most preferred methods are cheques, credit cards or automated ACH. So long as there’s a mismatch, banks will have their work cut out keeping everyone satisfied.

As winner of this year’s Global Finance 2022 Treasury and Cash Management Awards for Best White Label System Provider among banks, and recognised this year by The Banker as the Best Transaction Bank globally and Best Transaction Bank for Payments, BNY Mellon has invested heavily in creating both a platform and APIs to leverage its direct integration into The Clearing House’s real-time payments (RTP).

The aim is to help its customers’ customers’ payments move faster and with more transparency in their journey, which, in turn, improves liquidity and leads to better, more timely decision-making for businesses.

But, in the bank’s own words: “There are still many corporate and banking leaders who, though aware of real-time payments, don’t fully understand or appreciate what it is or the benefits it can provide. Some think it will not be of importance to their particular user base and, therefore, is not worth the investment. So, for all its obvious value, selling the solution is often painstaking.”

Isabel Schmidt, the bank’s co-head of the payment product function for treasury services, explains: “Through our white-label business, we provide payment capabilities to a lot of the largest banks across the US; we’re doing their legacy cheque processing but also helping them with some of the new digital payment capabilities, like The Clearing House real-time payments scheme, FedNow [the new instant payment service due to launch in 2023] and Zelle [an account-to-account money transfer network].

“We try to maintain a dual vision, in terms of serving the corporate communities ourselves while also helping our clients serve their own corporates, and down-market, mid-market and consumer base.”Most recently, BNY Mellon has been involved in the pilot stage of IXB, which also involves 23 other worldwide banks. The service is being designed by the organisations involved and is due to begin by the end of this year, with participants joining in a phased manner. It will utilise the fastest domestic payment options to enable the seamless movement of money across jurisdictions.

A proof-of-concept initiative in October 2021 involved seven financial institutions and proved settlement can be synchronised from two different systems into one, instant one, converting real-time messages between them using the capabilities of ISO 20022, SWIFT Go and the instant payment systems offered by EBA Clearing and The Clearing House. Initially, IBX will support transactions within US dollars/euro channels, in the hope that it will be extended to other currencies and payment systems in the future.

Schmidt adds: “Twenty years ago, I don’t think any one of us would have thought that we could go online, buy something from a person at the other side of the world and maybe not even know that this person is at the other side of the world.

“It’s been exciting to see how, in the last few years, the payment industry has started to adjust and catch up with the digital economy. We’re delighted to see instant payments take the next step into cross-border payments, and the work we’ve done with The Clearing House and EBA Clearing on IXB so far is already very exciting. “In combination with other cross-border developments, such as SWIFT Go, we are helping the industry meet the changing needs of an increasingly digital world.”

SWIFT Go, launched in July 2021, allowed small businesses and consumers to send tens of millions of fast, predictable, highly secure and competitively priced, low-value, cross-border payments anywhere in the world, direct from their bank accounts. This enables them to pay suppliers or send cash to friends and family using tighter service level agreements between institutions and pre-validation of data using solutions established for SWIFT’s gpi service, which is aimed at higher-value, mainly corporate, transactions.

“BNY Mellon alone processes around 300 million cheques annually, so a lot of our focus is on how we can educate our clients to accelerate the move away from paper”

Carl Slabicki, BNY Mellon

“The expectations and needs of clients have changed with digitisation,” adds Schmidt. “Those needs are very obvious and understandable to everyone in the consumer and small-business spaces and SWIFT Go is one answer to that. “IXB is another, and I think we will see more coming, over the next few years, as we continue to innovate.”While perhaps not top of the agenda for banks and businesses in the current, operating environment, BNY is also adding the potential environmental, social and governance (ESG) benefits to its list of reasons for businesses to embrace increased digitisation.

“As well as gleaning insights into business benefits like speed, cost, efficiency and risk reduction, we’ve started tracking the carbon output of cheque processing across the industry,” says Slabicki. “Through the payments we process for banks and corporates, we have insights into what those cheques mean in terms of tree count, carbon output and the fuel impact of mail delivery, and we’re trying to quantify that for clients.“

A lot of other companies are coming out with ESG targets and goals as part of their corporate strategies. Therefore, if we can give our clients data to manage and track that, tie it back to their payment strategies and demonstrate how they are living up to those goals, publicly and internally, this complements the traditional inherent business benefits – as well as showcasing some best-in-class examples.” Slabicki knows, in his heart of hearts, that comcheques will be a feature of the US payment system for years to come.

“It’s going to be a lot longer than everyone would like before cheques become obsolete,” he says. “You have regional implications, with digital adoption more prevalent in certain areas; segments are different, whether you’re talking about consumer business or large business.”

“So, how does it convince them to change? With patience, information and transparency, says Slabicki.“Some of the first questions we typically ask of corporate treasurers are ‘where do you send and receive the most cheques?’, ‘how many people do you have doing that process?’, ‘what is the cost?’, ‘how much risk and fraud do you see?’, ‘how long does it take to send and receive a payment?’ and ‘how many times does that cheque bounce?’.

“We can really unwrap that and then use it as a basis to say ‘here are all the other things you can do and the benefits you can derive from them, and other ways in which your peers have rolled this out in the industry.

Let’s set some assumptions around the benefits you can see as those cheques run off and you migrate to digital payments’.”Meanwhile, BNY Mellon is working behind the scenes with industry partners like The Clearing House, SWIFT, Early Warning, Zelle, Nacha, and the Federal Reserve.

“We’re trying to take a strong leadership position, working with those industry partners and peer banks to make sure the networks and that common infrastructure are moving into the future in the way we need them to,” says Slabicki. “And, as we work with the industry, our strategy, especially over the last five-to-10 years, has been very transparent for our clients. We’re telling them what’s coming, we’re discussing, in industry forums, where we think the market is moving to, and what we’re building, or sometimes what we’re just exploring, and asking for their input.

“We’re trying to ensure we are all moving in tandem, investing in digital innovations that will be the foundation for the next 10, 20 or even 30 years.”


This article was published in The Fintech Magazine Issue 25, Page 50-51

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