From the December/January 2012 issue of Treasury & Risk magazine

Postal Changes to Slow Bill Payments, But Not as Much

Remittance mail is likely to be given priority amid consolidation.

The U.S. Postal Service, struggling to make ends meet as mail volume declines, hopes to cut $2.1 billion in costs by eliminating up to half of its 487 processing facilities and loosening delivery standards.

While the proposed changes will slow delivery times, the details of the Post Office’s plan suggest remittance mail won’t slow as much as regular first-class items.

“Everyone is going to suffer a bit in the delivery of mail when they go to this new system,” says Lex Litton, a senior vice president at Phoenix-Hecht, whose products include a survey of remittance processing performance. “We think our survey is going to show aggregate mail times get longer in remittance, it’s just they’ll have less of an increase than first-class mail.”

While the Post Office plans to eliminate overnight delivery of first-class mail, Litton notes that there still will be overnight delivery of local remittance items.

The changes mean the Post Office will have less time to make two-day deliveries, so the geographic area from which remittance mail can arrive at a lockbox within two days will shrink. That may encourage some companies to add additional lockbox sites to speed the delivery of payments, Litton says.

Fifth Third Bank is rolling out a new strategy that employs remote deposit capture to speed payment processing. The Cincinnati-based bank, which has only a couple of processing facilities, is expanding its reach by working with SourceHOV, which will retrieve business-to-business payments at postal facilities for Fifth Third’s wholesale lockbox clients, image the contents and forward them to Fifth Third’s processing hub.

“You need a much smaller footprint to provide this service, rather than a full-blown lockbox site, because you’re only doing a piece of it,” says Steve Nugent, senior treasury management product manager at Fifth Third. Nugent says he expects to see more banks using remote deposit capture to expand their reach.

Analysts at REL Consulting estimate the slower delivery of both bills and payments could cost large U.S. companies up to $100 million in working capital.

Litton says the Postal Service’s plans are still vague, making it difficult to judge the impact. But he doubts it will cause much of a boost to electronic payments for business-to-business transactions. “We think most of that erosion will happen on the consumer side,” he says, noting that there are still barriers to implementing electronic payments.

 

 

You can read Phoenix-Hecht’s report on the Postal Service's consolidation here.

 

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