The Future of Lockbox: 3 Key Trends for the Evolving Payments Environment

On Tuesday, September 10, 2013 at 2 p.m. EST, TransCentra will be hosting a webinar event “The Future of Lockbox: 3 Key Trends for the Evolving Payments Environment” to address the importance of lockbox in an ever-changing payments environment. Paul Diegelman, SVP of TransCentra will host the event accompanied by two bank product management experts, Treasury Strategies, and Celent (myself). This blog will review some important factors relating to lockbox trends and opportunities. The reader will require a basic understanding from lockbox processes to fully appreciate the topics covered in this blog. Maximize Corporate ROI One of the key themes of the webinar will be to discuss how banks and lockbox providers can drive additional revenues while helping corporate users maximize their ROI. Lockbox opportunities do continue to exist amid continued paper volume declines. One way of enhancing the value proposition is cross-selling new service offerings such as data management tools. Banks and providers are able to enhance the value proposition and augment revenue per item by migrating corporate clients to image lockbox. After all, corporate don’t simply need a clearing house. They need solutions that provide informative data about their receivables from payments reconciliation to forecasting analytics. Even more than that, they need a comprehensive receivables solution which includes paper checks received from lockbox services. Retail versus Wholesale There is a big difference between retail and wholesale lockbox and that difference is continually increasing over time with the decline in Consumer-to-Business (C2B) check volumes for retail lockbox. Retail lockbox is a volumes game – without the high volume there is little opportunity to realize a ROI. Check decline has really kicked in only a few years ago despite the fact that many industry experts expected the decline about one decade ago. Wholesale lockbox on the other hand has much greater margins and cross-sell opportunities. Wholesale lockbox continues to specialize in vertical specific solutions such as healthcare, property management, and more. Banks and providers continue to go down market (small business) as the market is highly mature and the perception is that growth with middle market and large corporate clients is limited. It is important to note that clients often choose their bank lockbox provider based on the credit facility. Threats to Lockbox There are new products and channels that continue to threaten the revenue stream of lockbox services for banks and third-party providers. The two most likely are Remote Desktop Capture (RDC) and Mobile. Years ago, many experts predicted that RDC would cannibalize lockbox revenues. That has not been the case albeit we have seen a shift of volume from small business migrate to RDC. Mobile is a different story altogether. First off, Mobile is less about now but more about the future impact. In the short-term, Mobile will primarily be another value added feature for lockbox as it relates to reporting, alerts, etc. The next phase will see Mobile replace RDC as a complementary service for stray payments. This refers to those one-off payments where corporate clients can scan from their office and upload to their bank or provider to be processed with the other paper check receivables. Moving to the next phase of evolution, Mobile may replace small volume lockbox processing. The word “replace” may be a little harsh as the actual effect may be more of a shift in the business model. So instead of a lockbox service scanning and processing paper checks, it will process Mobile images. This only works for small volumes. I can’t imagine a corporate client receiving 10,000 checks per month deciding to take a picture and submit 500 checks per day throughout the month. However, a small business with 200 checks per month is a different situation. Technology – The Wild Factor The wild card in making predictions about the future is technology. Technology allows us to achieve tomorrow what we never thought possible today. So to build on my Mobile example above, imagine if technology can handle processing 10 checks in one click from a corporate client site. Bear with me as I’m making it up as I go. Imagine that you take two rows of checks with five in each row aligned side by side as though you are trying to fit them on a 8” X 13” sheet. Yes, I know it doesn’t actually fit since I just tried it but just a few inches off from fitting. Now imagine that you take your phone, logon (I logged onto my bank mobile capture app), and take a picture. It took me less than a minute. Now assume the bank or provider can take that image, parse out the checks, and process each as though they were received at the bank/provider as a paper check in lockbox services. With that business process, you can easily scan a stack of checks from the client site in a few minutes. The volume and timing does decrease if you also plan to scan any invoices, envelope, etc. However, you can still scan and process a transaction (check, invoice, etc.) in less than a minute with one picture. This would drastically change the business model since the bank continues to process lockbox services without the lockbox department. Okay, so you still need some personnel for data validation and correction – but many (expensive) parts of the process go away (sorting, extraction, etc.). Banks and providers would charge very differently for their services and the processing elements (OCR, ICR, etc.) can shift from bank to client. Closing Thoughts The example above was simply a hypothetical scenario of Mobile changing lockbox processing and the overall business model. The predictions about the decline of paper checks made over one decade ago have fallen short of many expert forecasts. Only recently, have we seen a drastic decline in retail lockbox volumes sufficient enough to alter bank and provider services. Wholesale lockbox continues to be significant revenue for bank cash management services. Please join us on September 10 to hear what several leading experts have to say about the future of lockbox.