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Breaking Up Is Hard to Do: Small Businesses’ Love Affair with Checks
PRESENTED BY
Connie Theien, Federal Reserve Financial Services
Tommi Homuth, Grayson College Small Business
Development Center
BC Krishna, MineralTree
Megan Minich, Silicon Valley Bank
Shaundell Newsome, Sumnu Marketing
Disclaimer
The opinions expressed are those of the
individual presenters & not those of the
Federal Reserve System, any Federal
Reserve Bank, or the companies
represented.
2
Panelists
• Connie Theien, Vice President, Federal Reserve Financial Services (Moderator). Connie is responsible for coordinating engagement with payment industry stakeholders to advance the Fed’s strategic direction for payments system improvement. Prior to establishing the industry relations function in 2013, she oversaw the marketing and communications function for first the Minneapolis Fed and then nationally for Federal Reserve Financial Services. In addition to her Fed experience, her career has included stints in agency, nonprofit and consulting environments. Theien holds an M.B.A. from the University of Minnesota’s Carlson School of Management.
• Tommi Sue Homuth, Jobs Act Coordinator, Grayson College SBDC Center. The Small Business Development Center is a nonprofit professional management counseling service funded by colleges & universities across the country & the U.S. Small Business Administration. The center provides free counseling to small businesses, including help with accounting, financial analysis, management, finding financing, marketing, & exporting.
• BC Krishna, President & CEO, MineralTree, Inc. MineralTree provides Business Payments solutions — making it simpler and safer for businesses to make & manage payments. When using MineralTree for AP, businesses save time, simplify approvals & payments, while ensuring that payments are safeguarded from online fraud.
• Megan Minich, Head of Online Channels, Silicon Valley Bank (SVB). Silicon Valley Bank is a commercial bank serving companies in the technology, life science, venture capital, private equity, & premium wine industries. SVB provides a suite of financing solutions, treasury management, corporate investment, & international banking services to its clients worldwide through 27 U.S. offices & operations in China, India, Israel, & the U.K. Founded in 1983 & headquartered in Santa Clara, CA, SVB is a member of global financial services firm SVB Financial Group (Nasdaq: SIVB), with SVB Analytics, SVB Capital & SVB Private Bank.
• Shaundell Newsome, Owner, Sumnu Marketing. Sumnu Marketing was established as a re-brand of Newsome Marketing Enterprises in 2011. In addition to leading Sumnu, Shaundell is a regular advisor to the White House on small business matters, an instructor for SBDCs & a member of the Urban Chamber of Commerce Board of Directors & the Las Vegas Metro Chamber’s Small Business Council.
© 2014 Federal Reserve System and BAI 3
Materials are not to be used without consent.
Session Outcomes
1. Better understand the value to small biz of electronic alternatives to checks & cash
2. Discuss pain points for small biz seeking to adopt more e-payments
3. Discuss how financial institutions can work more effectively with small biz to implement new payment strategies
4. Know where to locate more resources on payments
© 2014 Federal Reserve System and BAI 4
Materials are not to be used without consent.
Businesses Make Nearly 2/3 of All
Outgoing Payments via Check
Source: 2013 Phoenix-Hecht Treasury Management Monitor © 2014 Federal Reserve System and BAI 5
Materials are not to be used without consent.
Small Biz Rely on Checks the Most
• Small biz write about 5 – 6 billion checks per year at a cost of between $7.5 to $10 billion – writing checks isn’t cheap!
• Many small & medium-sized biz make almost all of their payments by paper check – in an electronic age, that’s a lot of paper! Why?
Checks meet small biz needs—i.e., easy to use, acceptance is nearly ubiquitous, service providers are plentiful, electronic payments are intimidating
Finding electronic payment alternatives is not a priority to small biz; too busy managing the core business
Effective alternatives are hard to find for small biz
Source: Market Sphere – Helping Banks Understand & Seize the Opportunity in Small & Medium Business Payments, MineralTree White Paper, 2013.
© 2014 Federal Reserve System and BAI 6
Materials are not to be used without consent.
New AFP Survey Results on Biz
Payments
• Top benefits AFP members cite from increased use of electronic payments. Do these matter to small biz?
Cost savings
Improved cash forecasting
Fraud control
More efficient reconciliation
• Top barriers AFP members cite to adopt electronic payments:
Hard to convince customers to pay electronically
Hard to convince suppliers to accept electronic payments
Shortage of IT resources for implementation
Lack of standard format for remittance information
Lack of integration between e-payment & accounting systems Source: JPMorgan, “2013 AFP Electronic Payments Survey,” 2013
© 2014 Federal Reserve System and BAI 7
Materials are not to be used without consent.
Hurdles for Small Biz Using ACH
1. Need to connect with the right person—i.e., specialized, corporate-focused “treasury” salesperson at bank
2. Need to be prepared to answer unfamiliar questions—e.g., “Are you planning to issue ACH credits &/or ACH debits?”
3. Risk underwriting can be tedious—e.g., complex forms to fill out, sometimes seems more than necessary
4. Hard to understand & rationalize monthly costs—e.g., maintenance: $40; file transmission: $5; per ACH item: $0.10; plus more fees for report services
© 2014 Federal Reserve System and BAI 8
Materials are not to be used without consent.
Hurdles for Small Biz Moving to Cards
• Many small biz are looking for a standard payment process used for all payments; implementing card infrastructure can be high cost
• Card payments do not necessarily include all the remittance data small biz need
• Card information is not disclosed to the payee; biz concerned about security
© 2014 Federal Reserve System and BAI 9
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Which Small Biz Tend to Accept
Electronic Payments?
© 2014 Federal Reserve System and BAI 10
Materials are not to be used without consent.
Appendix
© 2014 Federal Reserve System and BAI 13
Materials are not to be used without consent.
Resources
• National Automated Clearinghouse Association: www.nacha.org
• Association for Financial Professionals: www.afponline.org
• Small Business Administration: www.sba.gov • Association for Small Business Development
Centers: www.asbdc-us.org • The Institute of Financial Operations:
www.financialops.org • Card Payments: www.visa.com,
www.mastercard.com, www.napcp.org
© 2014 Federal Reserve System and BAI 14
Materials are not to be used without consent.
Contact Information
Connie Theien, Federal Reserve Financial Services
Tommi Homuth, Grayson College Small Business Development
Center
BC Krishna, MineralTree, Inc.
Megan Minich, Silicon Valley Bank
Shaundell Newsome, Sumnu Marketing
© 2014 Federal Reserve System and BAI 15
Materials are not to be used without consent.
