Enhanced Remittance Data Could Multiply Electronic Fund Transfer Volumes

My property management company in UK wanted me to link the following information to my monthly rent payment:

MCS MERIDIAN CLIENT ACCOUNT HOUSE RENT 98 MERIDIAN PLACE JUN 2008

There was no way I could do this electronically since the maximum info I could squeeze through in the reference field of my Online Banking's fund transfer screen was only MCS MERIDIAN CLT

As a payments professional, I knew that inadequate remittance info would make it tricky to reconcile a payment and risk the payment falling into a cyberabyss. Therefore, I refrained from paying my rents electronically. 

I've encountered similar situations many times through the following years in India. Ergo, I've shied away from electronic fund transfer (EFT) methods like NEFT.

I recently came across a few examples of individuals and businesses who have developed cold feet towards EFTs.

#1. TELECOM BILL PAYMENT

I know a company that always paid its ISP's bills on time but found its Internet connection getting disconnected for non payment of bills. Because I know a bit about the inner workings of payment networks, they sought my help to figure out what was happening. This is what I found out:

The ISP needed some basic info like Customer Number and Bill Number along with the payment so that it could match its collections against the specific invoice. The company couldn't fit this info in the reference field of its NEFT transfer. Thinking "What can go wrong?", the company went ahead anyway and made the payment electronically. Big mistake. Lacking adequate info to link the payment to the company, the receipt fell headlong into the ISP's cyberabyss. As per the ISP's accounts receivable system, the bill is outstanding. Ergo it disconnected the company's Internet connection. It took a lot of back-and-forth interactions between the company and the ISP to resolve the mess.

These days, this company pays its bills strictly by cheque. It can write as much "remittance info" as the ISP wants on the reverse of the cheque. Ever since it switched to cheques, it has never suffered disconnection of its line.

#2. IIT BOMBAY EVENT FEES

My alma mater's alumni association recently conducted a short event for which it charged a token fees of INR 200 (~US$2.5). It accepted payment via cheque and NEFT. In the past, the limited amount of info accompanying NEFT payments had caused it huge amount of reconciliation problems. Therefore, this time, it went out of the way to devise a comprehensive procedure to ensure that all NEFT receipts could be traced back to the appropriate source and given due credit. While you can find the full details of the procedure in diagram at the end of this post, suffice to say that it involved jumping through several hoops across website, email and telephone.

While we were all uniformly appreciative of the efforts of the alumni association for trying to rectify what was essentially a lacuna in the EFT rails, an overwhelming majority of attendees simply wrote cheques. 

#3. DIRECT CREDIT

Inadequate remittance info can pose problems even when you receive payments. When I used to get dividends, income tax refunds, insurance payouts and other payments by cheques in the past, they'd be accompanied by a statement providing details of the company, scrip, product, period, contact info in the event of discrepancies, etc. Now, they hit my bank account directly and I can barely make out the identity of the payor from the cryptic narration that accompanies them e.g. "ACH C- IOC REF NO3000089966-509038878490". Now, if you're like a lot of people I know, you might not care where money has come from as long as you've got it. There are a few problems with this approach:

1. You can be implicated in a crime if the source of the money is not kosher, even if the money entered your account without your knowledge or approval
2. How'll you report these receipts in your tax returns?
3. If the money does not belong to you, it's a crime not to report it to your bank, even if somebody else deposited it into your account.

*****

As the above examples show, inadequate remittance info has stunted the growth of EFT for sending and receiving retail payments.

Hopefully, there's light at the end of the tunnel.

According to this report, UK is seriously considering mandating longer remittance fields for electronic payments. Hope other countries follow suit. It's a no-brainer that enriched remittance info will go a long way towards driving up EFT volumes.