Wire Transfer Volume Could Grow Significantly If Process Streamlined

But without these changes, the report cautions that customers would be less likely to adopt wire as a replacement for checks, even for payments that would benefit from wire's immediacy and finality.

The report, Business-to-Business Wire Transfer Payments: Customer Preferences and Opportunities for Financial Institutions, found that both small and large companies want a more streamlined process for making wire transfer payments and favor a single remittance information standard. The survey also found that institutions are willing to pay more for payments that include remittance information, since this information will streamline their accounts payable and receivable operations.

"This research breaks new ground by identifying what corporations would like to see in their wire payments to make their internal processes more efficient and less costly, and confirms that corporations are willing to pay more to have remittance information included with wire payments," said Hank Farrar, Senior Vice President, responsible for CHIPS, the real-time, final payments system operated by The Clearing House Payments Company. "The research shows that wire transfer volume can grow significantly, but only if all parties in the wire transfer process work together now."

Statistical Highlights

• Respondents say that more than 80% of their payments (by volume) are still made by check
• Most accounting and bank-provided cash management systems do not work together, making process automation and straight-though-processing of wire transfer payments difficult to achieve today
• A consensus exists among users of wire payments that there is a need to create a common standard for sending and receiving remittance information with the payment
• 94% of respondents said it is "valuable" to include remittance information with the wire payment; 65% said it is "very valuable"
• 58% of the respondents say they are willing to pay an additional amount for wires that include remittance information. On average, respondents indicated that they'd be willing to pay $1.67 additional for payments that include remittance information. 32% of these respondents are willing to pay at least an additional $3.00.

Action Needed To Promote Efficiencies

The report concluded that if financial institutions do not take an active role in making improvements to the wire transfer system, payments that could benefit from the immediacy and finality of wire may default to the Automated Clearing House (ACH) instead. Pro-active steps that should be considered include:

• Enhancing payment system operators, bank and software vendor capabilities to include remittance information with wire transfer payments
• Supporting a common industry minimum remittance standard, such as EPN STP 820 and ISO 20022 that can be used by companies worldwide to move remittance information with the payment
• Enabling bank cash management systems to integrate more effectively with accounts payable and accounts receivable systems to facilitate straight- through processing.

"We believe that there is a unique opportunity for the payments industry to work together now to create value for the corporate end-users of Fedwire and CHIPS," said Lauren Hargraves, Senior Vice President at the Federal Reserve Bank of New York, responsible for the Fedwire services. "We are excited by the prospect of working with CHIPS, the banks and the software vendors to create a more efficient payments process."

The research was conducted from February through August 2006 by The Clearing House and the Federal Reserve Banks. Decision makers from a diverse group of companies that met qualifying criteria responded to a telephone survey. The survey focused on: the perceived value of sending or receiving remittance information with the payment, preferences for specific remittance information and practices surrounding notification of wire transfers sent or received. In addition, focus groups were held across the U.S. with individuals from companies of various sizes, types and industries.

The summary report, including methodology and verbatim comments from focus group participants is available online at http://www.chips.org and http://www.frbservices.org