e-Invoicing: Losing Luster … or Wave of the Future?

e-Invoice ServicesWhat’s happening with e-invoicing support services for small businesses these days?

Minneapolis, MN-based financial services industry market research firm Barlow Research Associates, Inc. reported in January 2014 that two of the three large banking institutions that had been offering e-invoicing services have now retired those programs.

Indeed, you won’t find mention of them anywhere on their small business online banking websites.

Donna Arce, Barlow Research Associates
Donna Arce

According to Donna Arce, a Barlow Research client executive, both Chase and Wells Fargo dropped e-invoicing in 2013, making Bank of America the only one of the nation’s 14 top banks still offering this service.  (Existing e-invoicing customers at Chase remain grandfathered in … for now.)

Reportedly, the reason behind the elimination of e-invoicing services was low usage.

But was this usage a function of low demand … or was it actually the result of limited market availability?

After all, Arce reports that overall invoice volumes are notable.  For the typical small business enterprise, approximately 75 paper invoices and 10 electronic invoices are generated in any given month.

In the middle market segment, the volume of invoices is quite a bit higher:  Those companies average just over 1,250 paper invoices and more than 250 electronic invoices in the average month.

For answers to the question about inherent e-invoicing demand, we can look to PayPal, one of several non-bank providers of e-invoicing services.

PayPalAccording to Chris Morse, a PayPal spokesperson, “millions of users” have accessed company’s online invoicing services – particularly since 2011 when the product was redesigned with more robust functionality and features.

For an analyst’s column she wrote on the topic, Barlow Research’s Donna Arce reported on remarks made by René Lacerte, founder and CEO of invoice management firm Bill.com, on the elements that are essential for making sure that e-invoicing is a viable solution for business owners.

Quoting Lacerte:

  • “Working in an entirely online environment is not realistic for many businesses, [which] need a receivables solution that will track and manage both paper-based and electronic invoices and payments in one system.
  • “Integration with accounting software is key to businesses adopting any financial management tool, including e-invoicing.  Without integration, businesses must re-key data from one system to another, which is both time-consuming and can be fraught with errors. 
  • “Issuing the invoicing and accepting payment are just part of the overall receivables process … The ability to collaborate with customers via a portal where invoices can be referenced, documents shared and notes exchanged, dramatically reduces the time businesses spend managing these inquiries.”

The PayPal approach is quite flexible in terms of the payment options for the recipient of the invoice.  Choices include its own PayPal bill payment option, along with credit and debit card payments as alternatives.

Contrast this with Bank of America, which requires the recipient to log on to a payment center, agree to terms, and then upload account information to make a payment – debit and credit cards not accepted.

Contrasting PayPal and the approach of the commercial banks, is it any wonder that the one is experiencing growth … while the others have seen low usage?

Of course, there’s also the issue of fees charged for e-invoicing services.  PayPal’s fee structure is different than how the commercial banks have charged for services, in that a portion of PayPal’s fee is based on a percentage of the transaction value (currently around 3%).  Depending on each company’s individual characteristics, that pricing model may or may not be the most lucrative for users.

Bottom-line, it’s clear that e-invoicing isn’t a dying service.  But how flexibly it’s presented – and the degree to which it can actually reduce inherently labor-intensive in-house administrative activities – spells the difference between its success or failure as a business service.

In other words … the difference between PayPal and the giant commercial banks.

Bitcoin currency: You’ve got a long way to go, baby.


Whether it’s defaulting to preparing the same half-dozen dinner recipes, always taking the same travel route, or preferring traditional hyms and liturgy at religious services, humans tend to be creatures of habit.

Of course, there will always be the minority who revel in being the first to try out novel communications technologies … adopt the newest fashions … or take advantage of the latest investment schemes.

But most people would prefer to hold back and let someone else take the plunge first.

That’s precisely where things stand at the moment with the Bitcoin alternative currency.  The “virtual currency” has been around long enough so that it’s now getting coverage in the “popular” press … and there are even a few folks who have begun using it as an alternative to established currencies.

Indeed, for the past year now, a few national retailers and chain foodservice establishments have been accepting payments in Bitcoin currency.

But a just-released survey that queried consumer attitudes about the new-fangled currency – referred to as a “crypto-currency” by some – underscores how steep a climb the Bitcoin has before it can ever be considered a viable alternative to the Dollar or other established currencies.

TheStreet, a digital financial media company, commissioned the survey which was conducted in January 2014 by GfK Custom Research North America’s OMNITEL unit  A total of 1,005 telephone surveys were conducted with Americans age 18 or older.

Let’s start out with the most basic finding from the survey:  Three out of four respondents aren’t even familiar with the Bitcoin term.

So right off the bat, that’s a major hurdle.  The Bitcoin may have been the subject of numerous press stories and broadcast reports, but the news hasn’t seeped into the larger market consciousness to any great extent.

NoNext … even after the concept of the Bitcoin was described to them, the survey respondents remained distinctly chilly to the idea:

  • Nearly 80% would “never consider” using an alternative form of currency like the Bitcoin.
  • ~80% would rather own gold than Bitcoin currency.

Did the survey uncover different attitudes based on the age of the respondents?  Yes – to a degree:

  • Just under one-third of young respondents (age 18 to 24) would consider using an alternative form of currency like the Bitcoin … versus only about one in ten seniors (over age 65).
  • ~15% of the young respondents would prefer to own Bitcoin over gold … versus only ~4% of seniors.
  • ~57% of young respondents feel that Bitcoin currency helps the global economy … while just ~14% of senior feel the same way.

The main takeaway from the GfK/OMNITEL research?  Bitcoin proponents are going to have to keep plugging away for a good long time before positive public perceptions of an alternative currency take hold — including needing to focus on the most basic educational elements.

Considering the level of financial literacy out there … good luck with that effort.

If any readers have ever used Bitcoin as a currency and would care to comment on their experience pro or con, please share your thoughts here.

How Low Can You Go: U.S. Banking Institutions are at their Lowest Tally Since the 1930s

Banking industryIt’s been more than 35 years since I began my post-collegiate working career in the commercial banking business.  At that time, there were well more than 17,000 federally chartered banking institutions in the United States.

The reasons for the high tally were clear.  Most states didn’t allow commercial branch banking across state lines.  And quite a few others – mainly in the Midwest and Plains regions – put severe restrictions on state branch banking as well.

That’s why states like Illinois and several others could have as many as 1,500 or more independent banking institutions each.

Of course, this hardly meant that these banks were operating in a vacuum.  Not only were there efficient automated clearing houses to process interbank transactions, there were also robust correspondent banking networks interlinking smaller and larger banks.

These networks enabled community banks to offer many of the same deposit, lending and cash management services provided by the larger institutions.

“Bigger is Better …”

Beginning in the late 1980s and early 1990s, many of the regulatory barriers began to fall.  States relaxed prohibitions on branch banking, while branching across state lines became common.  It wasn’t long before a string of acquisitions created large, consolidated banks.  The banking system began to look a lot more like Europe and Canada and a lot less like … well, the United States.

And it wasn’t just the small banking institutions that got swallowed up during this era of consolidation.  Many of the most venerable names in regional banking ceased to exist – institutions like National Bank of Detroit, Marine Midland, Maryland National Bank, Girard Bank and United Bank of Denver.

But then a countervailing trend developed, and it wasn’t the proverbial “dead-cat bounce.”  Consolidation caused voids in local banking coverage in many regions.  As a result, some businesses and consumers sought a return to banking institutions where ownership and management were part of the community, and where decision-making was based on a more intimate knowledge of the local economy.

So the commercial banking industry actually witnessed an uptick in the number of institutions during the late 1990s and early 2000s.

… Until the Great Recession of 2008/09 hit.

Today, the number of federally chartered U.S. banking institutions now stands at its lowest level since the Great Depression.

The stark facts are these:  A sluggish economy, low interest rates and ever-more complex regulations have diminished the number of federally chartered institutions to below 6,900.  The tally, according to FDIC stats, had never fallen below 7,000 since the mid-1930s.

Almost entirely, the recent numerical decline has come among smaller institutions – those with fewer than $100 million in assets.  And of the more than 10,000 banks that are now gone, it isn’t only because of mergers and consolidations.  Nearly 20% of them simply collapsed.

We’re not simply dealing with a reduction in banking charters; the number of physical bank locations is also declining – by about 3% since late 2009, thanks in part to the rise of online banking in addition to institutional consolidation.

John Barlow, Barlow Research and Iowa Falls State Bank
John Barlow

I asked banking industry specialist John Barlow for his thoughts on the latest bank figures.  Not only is this expert head of Minneapolis-based Barlow Research, Inc., a nationally recognized financial services industry market research and consulting firm that counts the largest U.S. institutions among its client base, Barlow is also chairman of Iowa Falls State Bank, a family-owned institution that could be characterized as the quintessential “local bank.”  (He’s also a former boss of mine back when I was working in the banking industry during the 1970s.)

Barlow noted an additional point about small banks:  “By their very nature, community banks are typically closely held – often family-owned enterprises.  A significant headwind for continued ownership is the transition of the business to a younger generation.  The Baby Boomers had smaller households, and their children are more likely to move away from the business – mentally as well as geographically.”

… or Is it Not Better?

There may be something of a silver lining in the recent trends, however.  Actual bank deposits have continued to grow, and consolidations have helped alleviate concerns that an abundance of separate banks leads to lower efficiencies in the financial system and more difficulties in conducting regulatory oversight.

… But only to a degree.  “It remains to be seen where the economies of scale exist in banking.  According to our studies at Barlow Research, larger banks do appear to be more efficient at generating income.  But that’s because they’re more aggressive at charging fees, not because of lower costs,” Barlow reports.

David Kemper, CEO of Missouri-based Commerce Bancshares, may have a point when he notes, “There’s no reason why we need [so] many banks, especially if those smaller banks have a much lower return on capital.  The small banks’ bread-and-butter is just not there anymore.”

[To that point, Barlow contends that one of the reasons smaller banks have a lower return on capital is that they have too much capital.]

Smaller banking institutionsThere’s an important counter-argument to the “consolidation is better” view.  It goes like this:  Community banks remain critically important to the economy because they are the ones more likely to engage in small-business lending.

Barlow Research’s statistical studies show that the small businesses that deal with community banks are more likely to be able to secure a loan.  And the average size of that loan will be larger than one obtained from a large institution.

The Most Startling Trend?

Another FDIC statistic might be the most startling trend of all.  Over the decades, each year has witnessed new bank startups – ranging from at least a handful to the low hundreds in any given year.  But that’s all changed since the Great Recession.

In fact, there has been just one new federally approved bank charter issued since 2010.

That institution, the Bank of Bird-in-Hand (located in Lancaster County, Pennsylvania), was able to raise approximately $17 million in investment capital.  But it also had to expend nearly $1 million in consulting and legal fees to properly prepare its application for a new charter — including spelling out policies and procedures detailing its systems to guard against cyber-attacks and other security risks.

“Intense” doesn’t tell the half of it when describing the effort needed to obtain a new Federal bank charter.

Considering those hurdles, what made the Bird-in-Hand investors think they could run a profitable banking operation in today’s economic and business climate?  It’s because they see an opportunity in serving a local community heavily populated by Amish and other rural/farming families.  Banking-wise, it’s an underserved community.

There once was a local independent bank, of course … but that one was acquired by a larger entity in 2003.  The new bank’s investors believe  they can provide services that are better suited to the needs of the local community – which, in turn, will make their new bank successful.

John Barlow adds this observation about community banking:  “A well-managed community bank is one of the best investments you can make, as long as you do not make bad loans.  Do that, and it’s all over in a couple years.”

And about the degree of governmental regulation in the industry, he remarks:  “I grew up in a banking family.  My grandfather and father complained about regulators all the time.  Banks are regulated businesses:  What’s new about that?”

Barlow and the Bird-in-Hand bank investors may well be right about the prospects for smaller banks in America.  Still … one wonders how many new banking institutions will be starting up in the current economic and regulatory environment.

… Or that the prospective investors will determine that it’s even worth the effort.

Delaware’s unclaimed property gambit: Small state … Big bucks.

The state of Delaware is serious about collecting unclaimed property at corporations.The state of Delaware has a reputation for being very friendly to corporations. And that’s not just talk, because there are more corporations registered in Delaware than in any other state.

In fact, more than half of all publicly listed U.S. companies have chosen to incorporate in Delaware.

But it turns out that there’s another side to the coin: This “business friendly” state is also ruthless about going after the unclaimed property that these corporations possess.

Companies that are incorporated in Delaware are obligated to turn over all unclaimed monetary property to the state. And the state is relentless in pursuing those funds.

For unclaimed dividends and securities, the Delaware law kicks in after three years. For other unclaimed property such as gift certificate balances and life insurance benefits, the state claims possession after five years.

There’s criticism, of course. Many contend that Delaware is unduly onerous in its unclaimed property dictates when compared to other states.

Chances are, such criticism falls on deaf ears. Why? I like what Chris Hopkins, a lawyer with Crowe Horwath LLP, says about the situation: “Unclaimed property is crack for the state of Delaware,” he contends.

And how much is the unclaimed property worth? Estimates are that Delaware has collected more than $1.2 billion in property, interest and penalties in just the past three years. The state uses the proceeds it collects to conduct state business – just as it would using state income tax revenues.

And woe to any company that neglects to keep proper tabs on its unclaimed property, because Delaware looks back more than 30 years when it conducts audits.

How many companies have robust records going back that far?

No records? No problem! The state will cheerfully estimate the amount your company owes – along with all of the accrued interest and penalties, of course. And they’ll accept your payment with a smile.

But there’s been enough grumbling about the record-keeping requirements that the state has grudgingly initiated a “temporary voluntary disclosure program,” wherein companies can make a good faith effort to identify unclaimed property dating back to “only” 1996.

If companies can show that they aren’t hiding any problems, the state will forego further auditing back into prior years.

Delaware Secretary of State Jeffrey Bullock stated this about the new voluntary program: “There was a recognition that we had to come up with a better system to meet the ultimate goal, which is to have companies in compliance.”

So which goal is it?  Companies in compliance? … Or a cool billion in added revenues for the state’s coffers?

You know the answer.

For U.S. Households, the $534,000 Elephant in the Room

It doesn’t matter where you may be on the political spectrum, the most recent financial figures about the U.S. economy and our financial obligations have to be stunning in their import.

It turns out that the federal government’s financial condition has deteriorated much more rapidly and significantly than is commonly understood – far more than the ~1.5 trillion in new debt that was incurred to finance the budget deficit.

Instead, USA Today is reporting that the government took on some $5.3 trillion in new financial obligations during 2010. Not surprisingly, a big chunk of these unmet obligations fell under Medicare and Social Security.

Adding these new obligations to the existing ones translates into a record of nearly $62 trillion in financial promises not paid for.

And if that particular number isn’t striking enough, perhaps putting it this way will get your attention: It translates into ~$534,000 in unfunded obligations for each individual household in the United States.

In addition to $534,000 being a breathtaking number in and of itself, it represents more than five times what Americans have borrowed for everything else (mortgages, car loans, college loans, etc.).

Now there’s certainly a big difference between the government and the private sector, of course. Corporations would be required to account for these new liabilities when they are taken on – and thereby report big losses to their shareholders. But unlike businesses, Congress can conveniently stave off recording these commitments until it’s ready to write the check. “See no evil … hear no evil …”

And here’s another big difference between the federal government and everyone else: the ability to “manufacture” greenbacks to pay for debt obligations. Whether we call it euphemistically “quantitative easing” or more bluntly “printing money,” that’s a solution that comes dangerously close to the famous quip attributed to H. L. Mencken: “For every problem, there’s a solution that is simple, elegant, and wrong.”

Sheila Weinberg, founder of the Chicago-based Institute for Truth in Accounting advocacy organization, raises another key point: “The [federal] debt only tells us what the government owes to the public. It doesn’t take into account what’s owed to seniors, veterans and retired employees. Without accurate accounting, we can’t make good decisions.” She has a good point.

The blind leading the deaf: It certainly doesn’t portend well for the future. But there’s always the hope that if we can somehow create robust future annual economic performance in the 4-5% range, we’ll grow our way out of the problem.

We’ll have to see about that.

Remembering Financier and Arts Patron Roy Neuberger (1903-2010)

Roy Neuberger
Roy Neuberger: Financier and art patron extraordinaire.
When someone lives to the age of 107, that’s news in and of itself.

But when Roy R. Neuberger died at 107 on Christmas Eve Day, he was far more than just a person who had lived an extraordinarily long life. He was one of the most significant figures in 20th Century American finance, along with being an important patron of the arts.

Neuberger’s life story follows the arc of America’s modern history. Born into a family of wealth in Bridgeport, CT in 1903, he was orphaned at an early age. At first Neuberger was interested in a journalism career, but found college studies unfulfilling and dropped out of New York University before earning his degree.

Neuberger’s first job in business was with B. Altmans, a famous New York department store. He would later recall that this experience prepared him not just for a life in business, but also nurtured a lifelong appreciation for art.

Neuberger then took a sabbatical from business in his early 20s to travel to Europe, where he dabbled in painting and lived the life of a Bohemian in Paris along with other American expatriates.

After this wanderlust wore off and he was back in the United States, Neuberger stepped back into the business world by beginning his career on Wall Street – mere months before the stock market crash of 1929. Soldiering on during the years of the Depression, by 1939 he had co-founded Neuberger Berman, an investment firm that would later establish one of the first no-load mutual funds in America (the Guardian Fund – still in operation today).

But Neuberger’s love of art and painting was never far from his mind. In fact, by the early 1940s he was well on his way to becoming one of America’s most important art patrons. Neuberger was an early admirer of the paintings of Peter Hurd, promoting his works and helping to put this artist on the cultural map. It was a pattern that would be repeated over the years, as Neuberger championed the works of such luminaries as Edward Hopper, Milton Avery, Alexander Calder and Jackson Pollock.

Over the decades, not only did Neuberger amass a trove of modern art, he was to become a major benefactor of important works to institutions like the Metropolitan Museum of Art, the Whitney Museum and the Museum of Modern Art (MoMA), as well as numerous college and university museums. This culminated in the building of the Neuberger Museum of Art on the campus of the State University of New York in Purchase, to house his collection. The museum, designed by architect Philip Johnson, opened in 1974.

On the social scene, Roy Neuberger was a fixture in New York business, political and artistic circles. He was a close personal friend of Gov. and later Vice President Nelson Rockefeller. In later years, after the death of his wife, he was a regular escort of the glamorous singer, actress and fellow art patron Kitty Carlisle Hart – another member of the glitterati who lived a long and celebrated life (96 years).

Throughout his many decades of involvement in the arts scene, Neuberger never severed ties to his business or the world of finance. Indeed, he was a person who seemed genuinely comfortable operating in both realms – two worlds that sometimes do not get along so well.

Neuberger even found time to write his memoirs: So Far, So Good – the First 94 Years was published 13 years before his death … and he penned a second book on art collecting as late as 2003.

Clearly, Roy Neuberger was someone who had a real zest for life and who never stopped growing and learning … which surely makes him an inspiration to many. But if that’s not enough for you, just the fact that he lived to be 107 years old is noteworthy in itself!

What’s changing – and what’s not – in consumer banking habits.

Consumer Banking BehaviorsThose of us who live our daily lives online from sun-up to sun-down may need to be gently reminded that many people are only being brought to the online world kicking and screaming.

The results of a new survey on consumer banking habits underscores this fact. Market research firm Empathica Consumer Insights surveyed more than 15,000 Americans and Canadians on their preferences for how they do their banking. The results show that while Internet banking has certainly made its mark, many people still have a preference for traditional methods when it comes to transacting routine banking business:

 Prefer Internet banking: ~41%
 Prefer branch banking: ~33%
 Prefer an ATM machine: 23%
 Prefer a mobile (M-banking) channel: 2%
 Prefer telephone banking: 1%

Moreover, it’s when dealing with an account issue or problem that consumer preferences for “tried and true” banking interfaces really come to the fore:

 Prefer to visit the bank/branch office to deal with an account issue: ~60%
 Prefer the telephone to deal with an account issue: ~34%
 Prefer online contact to deal with an account issue: ~6%

What’s more, consumers’ brand loyalty to a banking organization is mostly dependent on their perceptions of how well the bank deals with account issues or problems — not everyday banking transactions.

The quicker and easier a bank addresses an account issue, people are more apt to be brand loyal – even when compared to consumers who have never faced a banking issue or concern with their bank.

In other words, the notion of “making lemonade out of lemons” is at work here.

What about other major transactions like applying for a loan or opening a new account? The survey showed that there’s the same preference for dealing with the bank in traditional ways – face-to-face.

One of the more surprising findings of the Empathica study was how few people are using the mobile channel for their routine banking transactions. At the moment, it’s barely a blip on the scale. One factor that may be at play is that more than half of the respondents say they don’t trust the security of mobile banking (whereas only a quarter don’t trust the security of banking by computer).

But here’s a nugget that may be a harbinger of future behavior … those consumers who do use the mobile channel for everyday banking transactions say they’re highly satisfied with this aspect of their banking, and they express a high degree of affinity with their banking institution.

Like we’re seeing with so many other market segments, the mobile channel appears to be lurking just around the corner …