The Economy And Lockbox Demand

By Mark Brousseau

The recent economic volatility has got many people wondering whether lockbox providers are seeing a change in demand. To find out, I asked three lockbox industry veterans.

John Mintzer (john.d.mintzer@citizensbank.com), vice president at Citizens Bank, said interest in outsourced remittance processing continues to be steady even during the most recent economic volatility.

“Remittance processing is similar to the gaming industry in that the demand for remittance services doesn’t necessarily retrench or diminish during difficult economic times,” Mintzer explained. “However, the comparison stops there. While the client of the casino takes on more risk in the pursuit of wealth – capital – the remittance processing client is looking to reduce risk in the pursuit of protecting its capital.”

Customers with in-house lockboxes continue to evaluate whether it makes more sense to outsource, Mintzer told me. “There is significant appeal to outsourcing, because it simplifies the budgeting process by boiling the expense down to a per item basis. This eliminates the need to worry about changing labor costs, software and hardware upgrades, and the significant expense associated with business continuity.”

Steven Nugent (steven.nugent@firstdata.com), director, product management, at First Data Corp. doesn’t believe that economic factors have influenced the market’s interest in outsourcing as much as the ever-increasing unit cost per item due to electronic migration. “Companies have historically measured the value proposition of an outsourced lockbox against internal pressure to achieve margin goals,” Nugent told me. “It would surprise me if most in-house processors weren’t contemplating outsourcing prior to the latest economic downturn.”

Ron Victor (ronald.j.victorjr@jpmchase.com), vice president, Receivables Product Management for JPMorgan Chase, said his bank is seeing a decline in B2B check volumes of approximately 4 percent in the first quarter. “In my opinion, the key factors are the economic downturn, remote capture adoption [which flows into a separate P&L at JPMC] and electronic payment adoption.”

Victor added that the economic downturn certainly places a greater focus on intra-day collaboration (exceptions repair, data augmentation, invoice matching), straight-through processing, and remote deposit capture. “One key thing we have found is that the on-line user experience and ease of browser use are important to customer satisfaction,” he said.

Nugent also sees a stronger focus among billers on working capital management. “Value-added services designed to decrease time-in-process, such as intra-day exceptions processing and remote payment capture, take center stage in almost every conversation we have,” Nugent said. “Many of the payments processed through these channels carry a disproportionately higher dollar average. Image cash letter has become a standard for accelerating the back end.”

Mintzer, who will be a panelist with Nugent and Victor at TAWPI’s Payments in Transition conference this month in Las Vegas, added that his bank’s existing remittance customers continue to focus on line item processing charges. Some wholesale lockbox customers, as an example, are evaluating whether they can transition to retail lockbox services to reduce per item costs. “In some cases, this can work,” Mintzer said. “But there are many factors that need to be considered, including the return rate of the remittance coupon and the ability of the customer to absorb the upfront programming charges,” he explained.

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