A 5-Step Guide to Easier Payment Outsourcing

3 POINT ALLIANCE
A 5-Step Guide to
Easier Payment
Outsourcing:
BEST PRACTICES
FOR OUTSOURCING
REMITTANCE
PAYMENT
PROCESSING
This paper examines five steps corporate treasurers and IT or payment operations managers need
to know when deciding to switch payment providers or to outsource remittance payment
processing. We investigate the top reasons biller organizations outsource, how to mitigate
outsourcing risk and describe best practices for making remittance payment outsourcing easier.
INTRODUCTION:
What You Need to Know
Nearly all corporate treasurers are under pressure to contain remittance payment processing
costs. A recent banking industry study conducted by TAWPI (now part of The Institute of
Financial Operations) found that remittance processing unit costs have actually increased
despite intense focus in recent years at most biller organizations to reduce costs.1
As a result, companies are looking to outsource remittance processing in greater numbers
than ever. The chief reason for current unit price increases, as suggested by the TAWPI study,
is due to a decline in processing quality attributed to aging equipment.2
Payments processing outsourcing can achieve operational efficiencies by leveraging the
payment providers economies of scale, state-of-the-art equipment (including cloud
computing), and being in compliance with billing and statementing regulations which
are becoming more and more costly.
Outsourcing is becoming increasingly attractive because of these reasons:
•
A focus on core business functions over service
•
Accounting productivity
•
Customer demand for multi-payment options cannot be met
•
Declining check volumes
•
High payment volumes or unexpected payment volume increases
•
Higher service expectations
•
Labor costs – typically 50% of processing costs
•
Regulatory compliance costs – SSAE 16, FFIEC, HIPAA, PCI
•
Staff reductions
•
Technology capital may be scarce
So can companies meet cost-containment objectives by outsourcing their remittance
payment processing?
The answer is yes if business process outsourcing (BPO) best practices are leveraged in a way
that creates new efficiencies for the organization.
This white paper examines five steps corporate treasurers and anyone involved in deciding to
outsource payments processing need to know about to succeed:
1.
Understand the Business Case
2.
Build the Outsourced Payment Solution Step-by-Step
3.
Review Required Business Services
4.
Moving Day: Transition Roadmap & Implementation
5.
Validation & Contract Management
Looking at the current transaction processing industry landscape – which includes
remittance/lockbox and electronic payments -- this paper concludes that companies would
be wise to embrace each of these steps for an easier payment processing transition whether
switching from an existing provider or outsourcing payment processing for the first time.
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3 POINT ALLIANCE
3 POINT ALLIANCE
TOP OUTSOURCED PAYMENT PROCESSING RISKS
Whether you are a high-volume, medium-size or even small biller organization,
companies increasingly rely on services provided by third parties to support a wide
range of payment processing functions.
It is important to fully understand how your payment system touches your customer
and your back-office operations across a range of potential risks, such as:
•
DATA ENTRY— Without balancing, depth of client-defined decisioning,
robust software options, and the ability to meet strict banking industry
requirements – exceptions handling errors will rise impacting unit costs
•
DSO (Days Sales Outstanding) — Accelerate not only cash flow but as
importantly the ‘time value of data’ – a key factor in controlling costs especially
when meeting compliance and regulatory rules for time-sensitive payments
for mortgage, credit card and healthcare payments
•
USPS DELIVERY — Because of changes to USPS, companies need to revisit
how their remittance/lockbox routing can compensate for any USPS service
weaknesses
•
PROVIDER RISK — Billers often seek out the lowest price and the shortest
time to implement rather than challenging providers (starting with the RFP
process) to devise creative solutions to specific problems
•
COST INCREASES — Are you using a financial system to view costs that
accurately captures unit costs including soft or hidden costs like call centers
and/or can forecast future financial risk?
•
PAYMENT TYPE RISK — Does your payment provider have the ability to
devise the right payment strategy for your needs?
•
BUSINESS CONTINUITY RISK — Unforeseen natural disasters like superstorm Sandy in 2012 can have a devastating impact on payment facilities, data
and recovery
•
FINANCIAL STRENGTH — Performing due diligence on the financial
strength of your payments partner is essential in today’s rough economy where
some industry vendors may be financially strained
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REMITTANCE PAYMENT OUTSOURCING BEST PRACTICES:
Four Key Objectives
You need to feel like you are in good hands when it comes to outsourcing this critical function.
In order to minimize the risks of doing business with a third-party payment provider you
need to know you are working with a provider that can address a range of pitfalls that can
accompany outsourcing.
The goal is to make payment outsourcing as effective and pain-free to your organization as
possible. At each step in the process you will need to ask whether your provider can deliver:
•
Value for money — Does the vendor provide effective, efficient and economic
use of resources?
•
Effectiveness — Is there a “do the right thing” approach to the work?
•
Efficiency — Is “doing things right” a guiding principle? Can you compare
output achieved with the resources used to produce it?
•
Economy — Is the investment sufficient to achieve the business objective and a
quality result?
1. Understand the Business Case
Every potential vendor must demonstrate to the payment outsourcing team that they
thoroughly understand the clients’ business case.
Thomas L. Frale, Jr., President, BraMicMar Solutions defines this crucial step toward achieving
a workable outsource solution as, “The best thing that an organization can do for itself is
complete an honest, structured review to determine if outsourcing is the proper option for
them to pursue. Too often the fear of the unknown can cause people to hang on to high cost,
internal processes.”
Companies are often unable to openly address a solution set with potential vendors. If they
don’t know what their unit cost is, for instance; or, if they are not aware of the impact error rates
have on their bottom line, they may not adequately define these issues with potential providers.
3 POINT ALLIANCE
“An essential ingredient
of any holistic
outsourcing decision is
to see how your
provider links high-level
strategic plans with
day-to-day operations.
Unfortunately, the
payment processing
industry has been
plagued by grandiose
sales promises that
all too often under
perform. More than
ever in the dramatically
changing payments
landscape, moving
money and data with
the highest quality at
the lowest cost
requires deep,
long-term commitment
by billers and
providers,”
says Joe Proto, CEO
and Chairman of
Transactis, Inc., a
leading provider of
electronic billing and
payment solutions.
One business case scenario might involve errors handling. NACHA’s
2012 Exceptions Benchmarking Study
A SIMPLE REMITTANCE PROCESSING PAYMENT WORKFLOW
reveals that “0.58 percent of total bill
payments (including checks, ACH,
cards and cash payments) in 2011
were not able to be posted accurately
upon receipt by billers. Based on this
exception rate, it is estimated that
130 million payments required
exception handling, costing the industry
approximately $720 million annually.”3
Source: 3 Point Alliance
4
By adopting a thorough framework for defining business case objectives that includes a clear
weighting scheme, finding a best fit solution is attainable.
An experienced payments provider will steer clients away from the most common mistakes
involved in defining in-house transaction-related issues. During this phase, provider and client
should explore solutions by:
•
Leveraging qualitative/quantitative data. Build a solution which clearly
delineates each area of concern: For instance, precisely how can costs be
reduced? How do you account for stakeholder bias in the process? How can
internal resources be allocated to achieve a cost benefit?
•
Ensuring transparency and engaging multiple stakeholders. Engage senior
management and multiple stakeholders in the process during this phase to
avoid derailing objectives
•
Managing expectations. Reduce as much fear, uncertainty and doubt as possible
by committing to clear objectives, milestones, budgets, deliverables, time lines
and scope of work. This builds trust and helps to mitigate the perception of risk.
3 POINT ALLIANCE
2. Build an Outsourced Payment Solution Step-by-Step
To stay on top of changing conditions in the payments industry often requires out-of-the-box
thinking to solve today’s complex set of conditions – from a tough economy to competition
to new regulatory burdens -- which are driving costs up and making it more difficult to run
in-house payment operations cost-effectively.
Within financial institutions (FIs), some industry experts are seeing a renewed focus on
enhancing products and service menus, automation, increasing straight-through-processing
(STP) rates while focusing on regulatory issues.
“For the most part, FI’s have done an amazing job of managing risk in the payments industry,
“ commented Joe Proto Transactis’ CEO and Chairman. “The leading-edge research and
analysis done by leaders like Celent confirm that banks are continuously re-organizing their
transaction banking operations. But as FI’s struggle to comply with an array of increasingly
strenuous oversight requirements, offering internally managed payment processing solutions
has become a significant challenge for almost every size bank.”
How Billers Can Manage BPO
The three main stages of successful BPO involve a comprehensive review of required services,
the selection process, and contract management.
Billers need to analyze how these factors impact service levels and the bottom line.
How these critical support functions are deployed by your service provider at every
stage of the BPO process will determine a successful outcome.
Project Management
To achieve successful outcomes, biller organizations need to review resources to support
each stage of the outsourcing project. Appoint a project team leader responsible for
providing support for all the functions elicited from the business requirements review.
Your project lead would assign roles to the team depending on expertise. With a
designated single point of contact in the project manager position, companies looking to
outsource can avoid tying up valuable human capital during this phase of the project.
5
R. Buckminster
Fuller, architect and
systems theorist,
once said,
“…Human beings
always do the most
intelligent thing…
after they’ve tried
every alternative
and none of them
have worked...”
You are looking for a team with subject matter expertise in:
• Market knowledge •
Financial analysis and modeling
• Technical/operational •
Legal
• Problem-solving
•
Accounting
• Change management •
Audit/Compliance
3 POINT ALLIANCE
The main goal of project management at the outset of your project is to facilitate the business
case and prepare service level specs and agreements. It is a key to your success to align
project goals with business needs and requirements. At least one team member would be
dedicated to monitoring the performance of the contractor.
Change Management
Work with a provider that demonstrates a flexible approach to the project. This is especially
critical during the implementation phase. Custom BPO payment and remittance services
providers are able to implement almost any changes in relation to the service offering
depending on the terms of the service level agreement.
Change may include any operational changes to processes and systems, staff, and
organization structure. Outsourcing may involve a workforce reduction so internal staff may
have to anticipate sudden and dramatic changes in their work environment.
Understanding the level of change a project will cause is another key factor that a consultative
vendor can help you with to determine how to prioritize these factors before and during
implementation.
Quality Management
Does your payments vendor utilize a proven quality assurance (QA) methodology? Quality
management should be a start-to-finish continuous process. The procedures should be well
defined and put in place as part of the project planning process. Benchmarks should be a
required goal at each stage. Payment industry QA methodology involves quality audits and
reporting but all quality standards should:
• Meet all specifications and standards
• Meet client needs and expectations
• Provide measurable results
6
Transaction
Industry Change
Examples:
A biller
organization may
have to transition
paper payments
to electronic,
respond to
USPS changes,
accommodate
regulatory
requirements,
or modify
technology
by say,
adding mobile
payments.
Risk Management
The objective of a risk management process is to minimize the impact of unplanned incidents
such as super-storm Sandy or a telecommunications failure by identifying and addressing
potential risks before they occur.
Today’s transaction industry outsourcing project implementation will include areas of concern
critical to keeping the biller organization payment processes on track regardless of any
business continuity issue.
You are evaluating types of exposure – from loss of physical assets (electronic, equipment and
facility-related) to loss of any form of capital including human.
Primary areas that should be part of the BPO discussion:
Security measures and ratings — Do you have protocols for keeping personal identity
information (PII) discrete from other payment or customer data?
Credentials — Is your vendor SSAE 16 Certified and PCI-compliant? Is your vendor
ahead of the secure payment curve?
General Security —From employee confidentiality agreements, to magnetic keycard
entry to anti-virus computer protection and facility surveillance, security requirements
must be thought through. Have you thought of any contingency?
Data Security — Has your provider developed any proprietary monitoring tools? How
are access rights across the enterprise assigned and protected? Are your computers
and systems boot protected? Are users uniquely identified?
Facility Security — Review and evaluate any possible event from intrusion to fire and
floods to ‘false alarms’. Your facility must be protected from almost any potential risk.
Disaster Recovery — Everything from location failure to server redundancy and data
backup and encryption keys must be considered in your implementation plan.
Insurance — Is your potential payments partner properly insured?
Issues Management
The primary objective of issues management is to document and analyze any issues that may
arise with your outsourced implementation. Experienced providers will have the know-how
to structure comprehensive procedures for managing issues that reduce project risks — such
as cost over-runs, technology glitches, or human capital problems – for a range of payment
outsourcing implementations.
Biller companies have specific day-to-day challenges that run the gamut from staffing to
training to facility or data security to the cost to maintain and house equipment – that must be
managed throughout the project lifecycle.
Any and all of these challenges can be less worrisome when partnering with a trusted,
experienced provider making the entire process that much easier.
Financial Management
Financial management involves ensuring the outsourcing project is aligned with the overall
business objectives, implementation and long-term goals. This is achieved by transparent
reporting to senior management on the progress, scope and cost of the project.
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3 POINT ALLIANCE
Records Management
All records (whether paper-based or electronic) from the various stages of an outsourcing
project, should be captured in record keeping systems according to the biller organizations’
practices.
3 POINT ALLIANCE
Adopting a systematic approach to records management will enable you to:
•
Provide evidence of business conducted and decisions made
•
Manage legal and other risks
•
Meet accountability and measurement goals
•
Capture and share best practices into the future
3. Review Required Services
Following are the key components required to produce a detailed statement of work (SOW)
which becomes the foundation of the contract between the parties:
•
Review the business need
•
Review the service delivery requirements
•
Draft the service level agreement (SLA) (include performance metrics)
•
Develop the outsourcing model
•
Set transition and implementation requirements
•
Produce a detailed statement of work (SOW)
•
Set out contractual arrangements – Terms & Conditions, pricing
Align the service with business objectives. This step consists of ensuring that the outsourced
activity is a good fit with the organization and can contribute tangible benefits such as
implementing a virtually error-free payments system or vastly improving customer service
combined with meeting cost containment benchmarks.
Review the business need
Depending on the scope of the service under consideration, the biller organization may
undertake an internal review of the business need or business case before deciding to
outsource all or part of the remittance processing work.
This might happen as a prelude to the tendering process with potential vendors and it might
be conducted internally or with an external consultant.
Achieving clarity about the business case is the chief objective of this step. “For example,
many companies will simply purchase new payment or remittance processing equipment
or software thinking it will make processing more efficient or reduce costs but if they can’t
achieve the same economies of scale they would with a third-party vendor their cost per unit
won’t change or could even increase,” says 3 Point Alliance’s National Sales Director,
Gary Smith.
8
“If buyer and
prospect are clear
about objectives,
milestones, budget,
scope of work,
deliverables,
and time lines, this
builds trust. If you
discuss this from
the onset in the
statement of work,
it eliminates fear,
uncertainty, and
doubt which helps to
mitigate risk.
Outsourcing
partnerships that are
put together correctly
can create a true
‘win-win’ and allow a
corporation to
focus on their core
competencies” notes
Thomas L. Frale, Jr.
President,
BraMicMar Solutions
Prepare a high-level statement of service requirements
Once the service need is confirmed and the service scope is defined, billers should move to
preparing a high-level statement of service requirements.
Service requirements can be drawn up based on existing organizational templates and
customized for new and relevant business needs.
It should include:
•
Description of the operations environment — Location, systems, infrastructure
•
Description of the requirement — What is the agreed-upon service?
What are the service specifications?
•
Existing contracts may form part of the service — Are other vendors being
phased out?
•
Business continuity requirements and disaster recovery — Especially necessary
for payments outsourcing involving back-office systems and data
•
Identify areas of process improvement — for present and future needs
For finance, treasury or administration business units, review procurement policies and
processes and ensure they align with the proposed service offering. Any examination would
review technology, equipment, facilities and payment capabilities across a vast array of
payment and remittance options.
Review the service delivery arrangements
This step involves reviewing existing outsourcing arrangements and a high-level assessment of
other options for service delivery in order to decide whether to proceed with outsourcing.
Ask Yourself Key Questions
Important issues-related questions that corporate treasurers and other
decision makers involved in the process would ask include:
Has value for money been achieved?
Has the required level of service been delivered satisfactorily?
Were stakeholders’ requirements met?
Have there been any changes in regulations which may require a change
in the service scope?
Is there any significant change in the service provider market?
Is there any significant change in end-users’ requirements/expectations?
Is there any better alternative to the existing outsourcing arrangement?
If the outsourcing is to be continued, do any alterations need to be made?
If you’ve come this far in the process, you are ready to draft a Transition Roadmap for the
implementation.
9
3 POINT ALLIANCE
4. Moving day: Transition Roadmap & Implementation
Drawing up a Transition Roadmap of the implementation requirements makes life that much
easier for client and vendor alike.
The main elements of the transition planning phase are the change management strategy, the
implementation schedule for the new outsourcing arrangements or any contingency plan for
the transition – all of which require keen attention to detail.
3 POINT ALLIANCE
Transition and implementation involves contract management, a notification process for
the handover, approval and audit processes, staff deployments, monitoring the SLA with the
vendor, and tracking any third-party contract expirations or renewals.
Payment or remittance migration implementation includes three phases:
The Initial Phase
•
Programming – custom software modifications and client setup/configurations
•
Start-up Preparation - Remote Capture Facility, Equipment, Network, Software
Enhancements
•
Customized Reporting based on client business rules
•
Testing & Ramp-up Plans
•
Perform cutover planning
•
Internal end-to-end testing
The S.T.A.R. Approach to
Vendor Relationships
The Pilot Phase
•
Live work – verifying data
•
Transition phase initial reviews
The current in-house payment and remittance
processing environment is capital-averse and
budget-constrained. Declining paper volumes and
rising labor costs combined with the cost of risk or
regulatory compliance make adopting a defined
vendor relationship process – like S.T.A.R. – an
aspect of outsourcing payments which can mean the
difference between success and failure.
The Final Phase
•
Client Sign-offs
•
Production deployment
•
Cut-over – moving day!
S.T.A.R. is an evaluation model that stands for:
— Structure or aggregate relationship data within and
across your organization with proven processes
— Tangible results are the key to maintaining
accountability
— Active account management is a pillar of any
vendor relationship
— Repeat the process once honed and apply to all
third-parties regardless of size or complexity
Source: From an article titled, “The S.T.A.R. Approach to Vendor Relationships,“
by Thomas L. Frale, Jr., President, BraMicMar Solutions; published in
TransactionDirectory.com (2010).
10
5. Validation & Contract Management
Once the transition and implementation phase is complete and all transition plans are
approved, the criteria of the contract between the parties must be fulfilled. This requires that
both parties submit to a rigorous set of benchmarking, monitoring and evaluation procedures
for the life of the contract.
3 POINT ALLIANCE
Transition plans entail apprising the client of any staff dislocations or potential risks associated
with the service cutover. A post-implementation review may be conducted during this phase.
In the final BPO phase, there are two broad categories that would be addressed:
•
Validation – Monitor and validate all payment implementation benchmarks.
Once complete, the parties move into the contract management phase.
•
Contract Management – The following section addresses in more detail various
aspects of contract management including monitoring services and benefits,
continuous improvement, and building a lasting partnership.
Manage the relationship
Inherent in the post-implementation phase is the desire of both parties to manage the
relationship to achieve a successful outcome. Bringing a commitment to strong communication
and ongoing discussions that include process improvements is a crucial element of the
relationship.
The parties to any outsourcing are the client organization and the service provider. Each party
should manage their responsibilities following best practice principles.
Monitor Service Delivery
Depending on your service provider, monitoring the performance of the outsourcing service will
entail formal and informal reports and installing a series of QA measures.
Monitor Benefits Achieved
To ensure that the outsourcing arrangement provides value for money, the client will monitor
closely the benefits achieved and check them against the projected benefits.
Proper documentation of the actual costs and benefits realized against the contract is very
important because it provides essential information to measure the success of the outsourcing
exercise, and will help both parties amend provisions as they move through the contract.
Seek Continuous Improvement
It is a good idea to build in the principles of Continuous Improvement into the contract.
A good faith effort is required by both parties to continually improve the quality of the
service provided by always seeking ways to innovate.
11
Are your
cost savings
real?
The real test of
cost savings
when
outsourcing
payments
processing is
whether your
variable costs
become
fixed costs.
Achieving a Partnership
A well-drafted contract is the foundation for a win-win relationship but it cannot substitute for
a willingness to maintain a partnership between the contracting parties.
The objective is to ensure that both parties work towards common goals of achieving the
optimal outcomes. The three hallmarks of any successful partnership would always include:
•
Mutual trust and commitment
•
Openness and frank communications
•
A joint approach to managing delivery
SUMMARY
Whether switching payment providers or outsourcing for the first time, certainty is
a crucial factor when it comes to selecting a payments partner. By leveraging these
five key best practices you can feel more confident you’re making a solid business
decision, one that will help you achieve you business objectives.
As you look to engage a payments partner, ask whether they can demonstrate
financial strength, industry-specific experience, a track record of cost containment,
strategies for mitigating risks combined with pain-free project implementation
and payment migration. You must also trust in the integrity of the partnership.
These powerful partner attributes enable companies to make a strategic investment
in outsourcing mission-critical payments that can truly make it easier to outsource
payment processes.
If you ignore the pitfalls of keeping your payments in-house, it won’t go away.
Instead, it can potentially wreak havoc with a variety of issues including data
and facility security, compliance threats, and unforeseen rising costs from
dynamic shifts in the marketplace, until you finally decide – after ‘all the other
alternatives’ — that outsourcing payments is a good idea.
SOURCES
1
2
Brousseau, Mark. TAWPI Blog, “The Case for a Technology Refresh,” December 9, 2009.
Link: http://tawpi.blogspot.com/2009/12/case-for-technology-refresh.html (accessed September 16, 2013).
3
May 2010. “Strategies for Success: Alternatives to In-house Processing: Lockbox, Outsourcing and BPO” page 8,
from the 2009-2010 TAWPI Paying Processing Benchmark Study (the former TAWPI.org, now part of
The Institute of Financial Operations).
Link: http://www.transactiondirectory.com/StrategiesForSuccess.html (accessed September 16, 2013).
NACHA – The Electronic Payment Association and its Council for Electronic Billing and Payment (CEBP),
in the “2012 Exceptions Benchmarking Study,” press release dated May 1, 2012.
Link: https://www.nacha.org/node/1144 (accessed September 16, 2013).
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3 POINT ALLIANCE
CONTACT US:
3 POINT ALLIANCE
CORPORATE OFFICES
ABOUT 3 POINT ALLIANCE
3 Point Alliance is a pioneer in the development and deployment of vertically
integrated remittance processing software and hardware, business continuity
services and financing for in-sourced and out-sourced payment applications. Our
four companies — 3 Point Payment Processing, Qwinstar Corporation, Equipment
Leasing Organization and Business Continuity Services — create innovative,
efficient and cost-effective accounts receivable solutions for our customers.
Our wholesale and retail remittance service centers provide flexible, scalable
solutions across many business categories including finance, utilities and cable
companies. 3 Point Alliance is based in Clifton, NJ and has facilities in Philadelphia,
PA, Seattle, WA, Saint Paul, MN, and Chicago, IL.
Copyright © 2013. 3 Point Alliance Corp. All rights reserved.
777 PASSAIC AVENUE
CLIFTON, NJ 07012
(973) 928.3812
WWW.3PTALLIANCE.COM
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