Electronic Payments as Green Payments
‘Going green’can refer to recycling, energy conservation, reduction in the use of paper, water conservation, land conservation, waste minimalisation, or reduction in carbon footprint. But overall it’s about being a good steward of the planet and its resources. Over the past few years, going green has evolved beyond simply being the right thing to do. Today, it represents good business from an economic point of view, and not just from a corporate public relations point of view. Going green can result in a reduction in operating expenses not only for the financial services industry but for almost all organisations.
Going green can be as simple as reducing the amount of paper that your organisation uses. For example, since 2000, Bank of America has reduced the amount of paper used per employee by 40%. To achieve this reduction the bank implemented double-sided printers, and smaller print fonts across the franchise including in the cheque processing and statementing units. In addition, the majority of internal correspondence is sent via email or posted on internal intranet sites instead of being sent as interoffice memos.
It should be no surprise then that green initiatives are now rapidly spreading to the business of cash management. Going green is also about payments transformation, the movement by consumers and corporations away from paper cheques to electronic payments. “We’re seeing about a 6-8% reduction in the number of cheques written every year,” says Len Heckwolf, senior vice president within Bank of America’s global product solutions group. “If you look at our cheque volume from five years ago, it’s down 40%.”
Banking industry efforts in payments transformation include the conversion of paper cheques to electronic items that move through the ACH network, and the truncation of paper cheques to electronic images of cheques that can be transmitted instead of being physically delivered to the paying bank. Cheque truncation initially began with the Bank of First Deposit truncating the cheque in its cheque operations site, but now much of that truncation is being done even earlier in the transaction flow through the use of remote deposit capture desktop scanners that are installed at client offices. Each method not only reduces paper utilisation, but also reduces the carbon footprint generated through the physical delivery of the items from the Bank of First Deposit to the paying bank.
Bank of America was a founding member of the NACHA ‘PayitGreen’Alliance that brought together industry players to educate consumers and businesses about the positive environmental impact of choosing electronic bills, statements and payments over their paper equivalents. Len Heckwolf, as a member of the NACHA Board of Directors, serves as the board liaison to the initiative.
The basic message of PayitGreen is that electronic payments are not only more environmentally friendly, they are also easier and more efficient to do. PayitGreen has developed a toolkit of materials to help businesses of all sizes to convert to electronic payments. The toolkit will help them to develop a marketing plan, a project checklist, specific marketing materials, and even allows them the use of the PayitGreen logo on those materials for approaching their trading partners. It includes audio and video interviews, sample signup materials, statement stuffers, email campaign materials, and even sample press releases. The toolkit also includes several environmental calculators to help both the firm, and its customers determine the amount of an impact that their actions will have on the environment.
While both consumers and corporate clients are moving from paper to electronic payments, they are moving forward at different rates of change. For example, our customers are targeted through Bank of America Online and media campaigns with the core message that this is a cheaper, easier and more convenient way to handle finances and it is also a green process. Relationship managers and salespeople reach out to corporate customers with the same consistent message.
Consumers are rapidly shifting from writing cheques to using their debit cards, and credit cards for in-store or online purchases, and using online banking for both bill payments and the receipt of e-invoices. In addition more consumers are opting to receive their periodic bank statements through online banking instead of receiving a paper statement through the mail. “We think we will move the majority of our clients to full electronic statementing over the next three to five years,” says Heckwolf. This movement away from paper statementing reduces both paper utilisation, and the carbon footprint generated in the delivery processes, while at the same time reduces operating expenses for paper, statement generation, and postage.
“For existing clients, we really only send out paper when it’s required from a regulatory perspective,” says Heckwolf. “Other than that, the whole communications process continues to move towards an electronic format.”
Corporate clients are not changing their payments patterns as rapidly as consumers for a variety of reasons. The primary reasons for this, according to the 2007 AFP Electronic Payments Survey, are the information technology and integration constraints, the inability of trading partners to send or receive automated remittance information, and the difficulty in convincing customers and suppliers to adopt electronic payments. Despite the slower pace, however, there is still significant progress being made. NACHA has reported that the total number of business-to-business payments grew by 8.5% from 2006 to 2007. In addition, NACHA also reported that those payments that included electronically formatted detailed remittance data grew by 11.9%.
“All the tools are there, and to some degree it’s a matter of continuing to educate your customers,” says Heckwolf.
In addition to payments transformation and paper reduction efforts, last year Bank of America announced a US$20bn, 10-year environmental initiative to addresses climate change by championing sustainable business practices through innovative lending and investment strategies, new financial products and services, and operations. The business of going green is rapidly becoming big business for the financial industry.