Photo appears courtesy of Naval History & Heritage Command. Guest blogging today for the Aurora EDI Alliance is Carlos Rodriguez of DadeSystems. This blog is part three in a three part series on a virtual payment processing solution we are now offering called Lockbox 360.
In my previous two blogs, I began a thread that we will conclude with this third installment. In these previous blogs, I discussed why checks still matter today and why businesses still prefer to use them. To wrap up these thoughts with you, we will now explore the three main reasons why ePayments are NOT found everywhere (yes, it IS a wonder).
As a banker, let me tell you why.
Reason 1) Checks are a Standard - eChecks are Not
As I stated in my last blog, “The check is a marvelous instrument, despite its humble and now-obsolete form factor,” and gave you the reasons why. We still have an entire generation of leaders left that grew up on checks, understand them and have not decided to eliminate this payment choice, “just in case.” Since many, many businesses remain in the control of this generation of leaders, the check will remain as long as they do.
Also, I consider checks the closest cousin to cash. Sharing paper as a form factor, one has a fixed face value and one has a face value you control. This dual ability suffices for most human economic activities; it is as fundamental and basic as that. When an ePayment can do this easily, by anybody at any time, then a true new form of payment will be born.
And, unlike ePayments, checks ARE a standard. Also very basic and fundamental, but incredibly important. The check itself is the standard. Every bank in the world is able to process a check, for its face value. MICR, the standard font used at the bottom of the check, is not even really needed. In the banks, micr serves as a convenience, but in real time systems, “we kill the check at the teller line” anyway, so its 50 year old standard is nice to have and easy to use, but not necessary anymore. And, thanks to Mobile Capture, banks are waiving the need to present the physical item, defeating the micr line’s power as the first line of defense against fraud (because MICR ink contains actual ferrite particles in it, it denotes authenticity compared to a photocopied check).
As for the future, I definitely cannot stretch my vision too far there, but I can tell you the newest generation has never been exposed to a check, much less consider it as a payment option. I have now had the previously-unheard experience (now on several occasions) of having to describe a check, down to form and function to a younger individual, “...it’s about the size of your iPhone 5.” They absolutely had not seen one. You should see the look on their faces when I tell them they sign it, “...with a pen and everything.”
But, what really caught my attention is that, while they had “heard the term” check and had thought it had something to do with money, they had no concept of why or how you would use one. They are the first generation since the Medici to NOT know why checks matter. They do not know that there once was a piece a paper that stood in for cash, in any amount, but an expiration date (checks “state date” after six months). And, you mailed them?
Reason 2) No Standards
I do not wish you, the reader, to underestimate the absolute mess caused by the present lack of standards in payments. ACH payments are not checks, are not credit cards, are not wires, and are not SWIFTS, which are not rdc (do not get me started on bitcoins). The current image standard for checks (ANSI x9.xx) is not anywhere near the EDI standard which has a subset health care definition, but not a check one. There is an ACH standard and EDI ACH standard (eBIDSACH from NACHA) but one is ubiquitous and one is an unpopular initiative (despite being excellent and actually, The Answer).
But, while it is easy to blame the standards (or a lack of adherence to them), I notice an obstacle even more fundamental to the problem - accounting systems themselves. As the final consumer of payment information in the payment process, you might think accounting systems are ALL about payments. For those of us that deal with them, nothing is farther from the truth; accounting systems, with their self-absorbed point of view, give little support to interacting directly with payments. There is always an intermediate step, such as producing an “import” file and “exporting data” to report writers and other applications. Why can’t I pay an invoice from the invoice screen in my accounting system? Why can’t my accounting system ACCEPT a payment directly from another accounting system?
Instead, we end up with incredibly functional, fantastic standards that nobody uses. We also have a market chock full of amazingly-capable accounting systems, with all those incredible features. And yet, for the life of me, why is that no two are able to “talk to” one another, or even their bank, in any sort of direct, precise way? We actually need two-way fiscal “data exchange” between companies that could resolve such key pressing issues as discrepancies, discounts, clarifications, denials, approvals, eliminate float, accelerate postings and gosh-knows what other item your industry needs. All of these last items remain unsolved, ill-defined, widely-varying problems and issues across most industries.
Reason 3) Competitive Economics
“There is no incentive for me to use your standard. I like my preferred standard.” When investments and career decisions depend on your choice of providers and standards, it is difficult for the average decision maker to commit to one. What if they are wrong?
So, as we walk mentally thru that process, we empathize with the decision maker; it sure is difficult committing to a standard when even your best staff cannot promise you will “win.” In a horse race, I can pick winners and losers and I can blame myself for losses and congratulate myself for wins. But, in business, I do not have that luxury; if losses also mean you lose your job, your outlook will look decidedly be conservative and cautious. Committing to a standard that has the possibility of losing, even if it is a barely perceived hint of a risk, competitive economics dictate that I will select the outcome with the highest probability of success as one of its characteristics.
Now, let’s walk down the vendor’s point of view; we too empathize with the decision maker; it sure is difficult to ask the decision maker to use your carefully-designed standard. Since I as a vendor cannot guarantee my standard will emerge as the industry standard, I need to develop what will sell, so I can pay the bills. If what sells is a solution that does not need a standard, but uses existing paradigms, then I should have an easier time selling my solution. It should have a larger market. Few vendors push the envelope and I consider myself very fortunate to work at one such vendor. I see these differences and experiences above in my competitors, customers and prospects all the time.
And so, in conclusion, while checks have a foreseeable life span, the lack of a superior standard to replace them keeps them alive. While no standard exists for all payments, you should definitely push your vendors to strive for compatibility and extensibility. Set the standards. Force them to interact intelligently, in meaningful ways that matter to you. They are your vendors, they should satisfy you. Do not allow your vendor to pigeon hole you into their solution; do not let their competitive economics interfere with the smooth flow of yours!
Find vendors with open minds and even more open applications, willing to change their code for you. They exist, believe me. And, having touched and tried some challenging projects before, you might be surprised at what they can deliver and what they can provide in the form of invaluable work experiences. They work with multiple customers, some even competitors of yours, so not underestimate a good vendor's ability to help you.