Cash management banks have bragged for years about their ambitions to provide robust A/P and A/R outsourcing, but so far they have approached that turf only indirectly via purchasing cards or electronic invoice presentment and payment (EIPP). In December, Pittsburgh-based Mellon Financial Corp. changed all that when it wrote a check to buy a privately held College Station, Texas–based A/P outsourcing provider, SourceNet Solutions Inc. With that purchase, Mellon made a big bet on the world of integrated financial processes–even though it will be months before the bank is able to link SourceNet's A/P services to its global cash management services. "Until now, we were primarily helping customers execute payments, including printing and mailing checks on their behalf," notes Robert W. Stasik, executive president and head of Mellon's global cash management operation. "Now, we have a solid presence in both handling payments and doing the back office activities like invoicing, matching, getting necessary approvals and resolving disputes. This really complements our strategy to offer total financial solutions."

Mellon made its move only after asking clients what they wanted and would be willing to buy. "A/P was near the top of their list," Stasik reports. "So we started looking for ways to enter the space." Unlike EIPP, which generally has failed to take off, A/P outsourcing has the advantage of taking the world as it is and improving it, rather than forcing companies to make fundamental changes, says Dave Robertson, a Chicago-based partner at Treasury Strategies Inc. A/P is a strong candidate for outsourcing since it is less fragmented and easier to hand off than A/R, he adds.

Robertson, who has overseen three recent assignments in the treasury-A/P outsourcing space, observes that Mellon "definitely has made a bold move." Another regional bank he won't name is six to nine months into an A/P outsourcing pilot. Otherwise, bank A/P product development has stayed below the corporate radar. There is more activity in the public sector: Bank One (now part of JPMorgan Chase) has offered child welfare payments outsourcing to the states. That low profile is likely to change. Besides needing to compete with Mellon, cash management banks have "never [felt] greater urgency to find new revenue in treasury services," Robertson notes. "Fee revenue from check clearing is declining, and deposit revenue has been weak." A/P outsourcing could be the cure. Research conducted by Treasury Strategies and commissioned by J&B Software found that A/P outsourcing is a feasible service for banks to offer, with potential revenue as high as $1.5 billion, Robertson reports. On the corporate side, Sarbanes-Oxley has generated interest in outsourcing A/P.

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