1. Three key trends will shape the future of lockbox services: the need for more locations closer to where payments originate due to changes in mail delivery; the emergence of hybrid wholesale and retail 'wholetail' lockbox solutions; and the importance of data management and integration to provide insights from payments information. 2. Experience shows that leveraging modern adaptable lockbox solutions can deliver significant operational efficiencies through blending in-house and outsourced operations in hybrid models. 3. While big data presents opportunities, for now lockbox providers are focusing on consolidating existing data and looking at enterprise intelligence to optimize their businesses.

1. To tackle these challenges, lockbox providers are seeking
new approaches to their business models that both
increase the efficiency of their payments networks while
reducing expensive manual work. They’re also sorting out
which technologies will drive new fee-based revenues,
while developing the business case to pay for them.
In this paper, we identify three vitally important trends
that will shape the future of lockbox in coming months
and years.
loCaTion, loCaTion, loCaTion
The U.S. Postal Service announced that it plans to
accelerate closure of 71 mail processing plants from
2014 to 2013. In addition, depending on the distance
between the origin and destination, first class mail
transit times may be delayed by a day or more. Although
Saturday mail delivery has been retained for now, its
elimination could still be a component of a major overhaul to
overcome USPS budget woes. This means that billers need to
plan for the possibility of a 5-day mail delivery and the
associated cash flow and receivables implications. The delay
will affect billers’ customer service, treasury, and collections
operations. For banks and other lockbox providers, the
message is clear: get closer to where the payments originate.
As the post office’s network contracts, billers’ days sales
outstanding (DSO) and working capital requirements will
suffer without an adjusted and optimized lockbox footprint.
At the same time, banks are compelled to fund initiatives in
e-payments, enterprise risk management, security, and
compliance, and they are opting to invest in high-growth
product lines rather than flat or declining legacy businesses
like lockbox, despite their current revenue contribution. So for
most banks, adding a new site to a lockbox network isn’t so
easy. It’s difficult to justify an investment in additional sites
over other investment opportunities, given that wholesale
lockbox revenues were slightly down year-over-year in 2011
and retail lockbox revenues were down 2.5% for the same
period (Ernst & Young 2012 Cash Management Survey), and
trends show continued declines in paper volumes into the
foreseeable future.
Yet while lockbox volumes may be attenuating, they certainly
won’t vanish overnight. Some 70% of business-to-business
payments are still made by check and, despite the broad
adoption of electronic payment methods, a substantial
portion of consumer payments will continue to be check-
based for years to come. The challenge of needing to expand
the reach of a shrinking business calls for creative thinking and
nontraditional approaches to providing infrastructure and a
high-quality work product.
in-house or ouTsourCe? Yes
The broad adoption of automated and online
payments has had the interesting effect of
causing a spike in the percentage of paper
lockbox exceptions. The majority of the first
consumer payments to migrate to electronic payment methods
were very clean, single check/single coupon work. As a result,
the remaining work has become dirtier and more manual, with
a higher level of exceptions as a percentage of overall volume.
The future of lockbox:
Three key Trends in the evolving Payments environment
The loCkbox business is in a sTaTe
of TransiTion.
123Change has been driven as much by necessity as by opportunity. Banks began exiting the internal provision of retail
lockbox in the late 1990s and, more recently, wholesale lockbox. Now they’re facing increasing competition from
third party lockbox providers. The legacy business isn’t growing, and margins aren’t either; nevertheless, lockbox
still remains an important revenue enabler for treasury management providers. Vertical markets, such as property
management or healthcare processing, offer profitable new prospects—if lockbox providers are able to offer
technology-based and customized solutions that adequately address market requirements.
— by Paul Diegelman and Jim Bann
©2013 TransCentra, Inc. www.TransCentra.com I page 1 of 3
1 The challenge calls for creative
thinking and nontraditional
approaches to providing
infrastructure and a high-quality
work product
2

2. Handling and resolving these exceptions is expensive, since it
requires time and manual intervention.
For banks offering both wholesale and retail lockbox, a hybrid
wholetail lockbox is emerging as an essential capability. Third
party payment processors that support wholetail lockbox—in
a single platform that also supports retail and wholesale—
enable banks to capitalize on existing operations in multiple
strategic locations, regardless of whether the payments are
B2B or C2B. Some in the industry are predicting the eventual
consolidation of retail and wholesale workflows. Thinking
wholetail is a logical first step in that direction. Synthesizing
wholesale and retail operations will better utilize existing
investments and personnel while improving efficiencies overall.
Banks that are able to change their mindsets and take this
approach to lockbox processing may be able to emerge as the
real winners.
Problems arise when a lack of investment meets existing
infrastructure issues, preventing a transition to a more flexible
wholetail environment or the consolidation of separate
wholesale and retail operations. Legacy lockbox environments
were generally not built for adaptability. However, experience
has shown that leveraging modern adaptable lockbox solutions
can deliver tremendous operational efficiencies, particularly the
blending of in-house and outsourced operations. A hub and
spoke payments configuration can make optimal utilization of
multiple facilities. In some cases, it may make sense for a bank
to operate satellite facilities outfitted with RDC and utilize a
payment processor’s payment hub; in others, the bank can
maintain its hub and use one or more third party locations as
satellite facilities. Even in-house facilities utilizing hosted
processing platforms are gaining favor and proving their value.
Factors that will impact the decision on how best to evaluate
individual network structure include in-house staffing levels,
cost structures, equipment utilization, changing workflows, and
geographical distribution of retail and wholesale customers.
For banks that rely on their in-house operations to provide
customer service and maintain customer touchpoints, the
hybrid in-house/outsourced model is an ideal solution. RDC
makes it possible to seamlessly integrate a third party payment
processor into the workflow without major modifications to the
existing payment platform, especially with hosted RDC options.
The hybrid in-house/outsourced approach can help regional
and super-regional banks that want to expand their footprint
without committing to permanent new facilities. Strategic use
of RDC can enable these banks to combine wholetail and
hybrid sourcing to their best advantage.
CuTTing big DaTa Down To size
Big Data - is it a fad or a trend? Deciding which
technologies are most practicable and
meaningful to lockbox operations is key to
planning for the future. For automation to be
relevant to the lockbox business, it must address issues
related to complicated transactions, well beyond just checks
and invoices in wholesale, or coupons and checks in retail.
Ultimately, many of the answers lie in data management, from
individual transactions to the “big picture”.
Customers consider consolidation of data and automation of
workflows to be a priority for better AR transparency, so
integrated receivables are top of mind for lockbox providers
as they prepare for what’s next. According to Treasury
Strategies, clients that utilize an integrated receivables
solution spend 2.5 to 6 times the fees as comparably sized
companies that don’t utilize such a solution, because clients
using integrated receivables rely on a number of fee-
generating tools in an attempt to reduce the cost of their
internal receivables management, including automated cash
application, online decisioning, exceptions management, and
deductions management. As part of an integrated platform,
some commercial customers will require integration of wire
transfer, ACH and SWIFT data, as well as e-invoicing, supply
chain and other business processes. All of these are avenues
to additional revenue for providers.
On a broader level, integration of multiple payment channels
will be especially important to companies that want to better
www.TransCentra.com I page 2 of 3
20
18
16
14
12
10
8
6
4
2
0
NUMBEROFBANKS
Source of Lockbox Processing
for Top 50 US Banks
Source: TransCentra Industry Analysis
Note: Totals do not equal 50 as some of the Top 50 Banks
based on asset size do not offer lockbox services
Internal
Processing
Outsourced
Processing
Both Internal and
Outsourced Processing
3
Synthesizing wholesale and
retail operations will better
utilize existing investments
and personnel while improving
efficiencies overall
Experience has shown that
leveraging modern adaptable
lockbox solutions can deliver
tremendous operational efficiencies,
particularly the blending of in-house
and outsourced operations

3. understand their payments data through data mining and
predictive analytics. Three quarters of C-Suite executives
in a 2012 Harris Interactive/SAP survey believe that Big
Data presents opportunities for their companies, and banks
are no exception. Data gleaned from payment transactions
could potentially help banks better manage exceptions and
customer risk. The problem is that applying predictive
analytics to massive sets of structured and unstructured
data requires a major investment.
Rodney Nelsestuen, senior research director at CEB
Towergroup, warns that “the big issue with Big Data is you
don’t try to boil the ocean.” Celent believes that, rather than
focusing on Big Data, banks should be looking at what they
call “enterprise intelligence,” which includes customer
intelligence, business intelligence, and transactional
intelligence to create “a three-dimensional view of the data
that gives the bank a sense of who is doing what, and why.
”While Big Data is destined to be a consideration in the
future of lockbox, it’s not yet clear which implementations
of Big Data will best optimize risk and reward. For now,
smart lockbox operators are consolidating data feeds and
looking holistically at data management opportunities in
an attempt to create a centralized transactional data
structure and data store that can be leveraged now and
into the future.
loCkbox in The fuTure:
anChor or aCCeleraTor?
For banks, lockbox continues to be a very
valuable treasury service that facilitates
customer relationships and cross selling of other
core services. The question going forward is whether lockbox
can present a strong business case on its own. We believe
that many opportunities remain for the lockbox industry, but
they require a new way of thinking about payment networks.
Wholetail processing and strategic outsourcing are
important first steps. With more efficient and flexible
payment networks, banks will be better positioned to
leverage new technologies to serve important customers
now and in the future. n
Paul Diegelman, senior Vice President and Practice Manager,
TransCentra – With over 20 years of BPO, finance and accounting
expertise, Mr. Diegelman is responsible for the vision, execution,
growth and profitability of TransCentra’s Private Label financial
services division. Prior to joining TransCentra, Mr. Diegelman was
Vice President and Practice Manager at BancTec, Inc., responsible
for the vision and execution of the company’s successful new
business launch in the Accounts Payable outsourcing and
automation market.
Mr. Diegelman is a nationally recognized speaker at outsourcing
and treasury management conferences, including over 10 years as
a faculty member of UNC/Kenan-Flagler’s Fundamentals of Cash
Management Series, and is an inactive certified public accountant
(CPA) in the State of Maryland.
Jim bann, first Vice President, TransCentra – Prior to joining
TransCentra, Mr. Bann was Senior Vice President/Senior Banker
at KeyBank in Cleveland, Ohio. As the Team Leader for the
Treasury Services Correspondent Banking Team, he was
responsible for the sales of KeyBank’s cash management services
to banks throughout KeyBank’s multi-state footprint.
Previously, Mr. Bann was First Vice President and Enterprise
Sales Manager with Mellon Bank, providing private label treasury
management services to financial institutions, including some of
the largest U.S. banks. Mr. Bann is a former member of the AFP
and has held both the CCM and CTP credentials.
abouT TransCenTra:
as america’s largest outsourced remittance processor,
one of the largest outsourced billers, and a top provider
of imaging and payment processing platforms and
software, TransCentra is an industry leader in innovative
multichannel billing and payment solutions.
for decades, we have delivered transaction software and
services under the regulus and J&b software names.
now, those companies are unified as TransCentra. our
customers include many of the largest and most trusted
names in both the consumer and business-to-business
markets across a variety of industries, including financial
services, telecommunications, utilities, and beyond.
TransCentra helps you transform your critical treasury
operations through innovation, automation, a deep
understanding of financial processes, and a single-
minded commitment to delivering improved outcomes.
we achieve treasury impact by intelligently applying
software and services that improve visibility into your
corporate cash cycle, increase the efficiency of your
billing and payment processes, and reduce the costs of
your treasury activities.
TransCentra is an independent, privately owned company
headquartered in norcross, ga, with more than 1,300
employees in 11 locations across the united states. The
company’s executive team includes financial services and
payments processing industry veterans and the company
is backed by world-class investors. for more information,
call us today at 1-866-747-2877.
www.TransCentra.com I page 3 of 3
Rather than focusing on
Big Data, banks should be looking
at “enterprise intelligence”