By Mark Brousseau
The push towards remittance outsourcing may get a second wind, according to the results of a recent Question of the Week on the TAWPI Web site. A whopping 58 percent of the 264 respondents to the question are planning to outsource their remittance operations, and another 13 percent of respondents are unsure of their plans – meaning, up to 71 percent of remittance operations could be outsourced. Only 29 percent of respondents said they were committed to their in-house operations.
The growing interest among corporate billers in outsourcing their remittance operations doesn’t surprise Steve McNair, president of FTP Consulting Services, Inc., in Southlake, TX (mcnairs1@aol.com), but he admits that the survey’s findings are “extremely significant.”
“The problem is that remittance solutions vendors have stuck with an outdated financial model, and there simply aren’t enough productivity gains and cost savings in the technology to pay for the systems,” McNair said. “It’s been seven years since most remittance processors last implemented new systems. But when processors look at the cost new technology, three things give them pause: concern that they won’t get enough bang for their technology buck, declining check volumes, and long payback times. Vendors need to find an alternative way for corporate billers to implement new technology that doesn’t require a significant upfront capital investment.”
McNair noted that two prominent companies engaged him in the past year to help evaluate the feasibility of implementing new technology platforms. Both companies ultimately determined that better technology platforms were available, but neither one could cost-justify the move. For the time being, they are sticking with the status quo. Has your organization had a similar experience? E-mail me at m_brousseau@msn.com.
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We are not surprised at the overwhelming percentage of respondents who said they are planning to outsource their payment processing operations. Regulus Group, a service provider of billing and payment processing services, has seen a significant increase in the past 18 months of in-house operations assessing their current payment processing environment. In addition to Steve McNair's points about the cost of new technology, declining paper volumes, and lengthy ROI, Regulus has noticed other key drivers regarding the outsourcing trend, such as:
- Do their consumers have the ability to pay in all the channels that they want?
- Is their payment processing operation able to meet the increased compliance requirements (GLB, HIPAA, SOX, OCC) and have they set control objectives and passed a SAS70 II audit?
- And, what about Disaster Recovery and Business Continuity? Is there any? Is there a plan? Has the plan been tested?
- Where do they invest their capital, especially now that the Cost of Capital ("WACC") is increasing?
With these key drivers fueling the trend toward outsourcing non-core in-house operations, I believe we will continue to see high activity in in-house vs. outsource business case analysis.
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