currencyfluctuation"The Payoff" has modest ambitions. When we bring you the latest news about payment systems, the point is not to "energize your consumer base" or inspire your employees or any of the other lofty claims we occasionally see for "gamification" or the "mobile Web".

You should, though, aim a little higher than the mere cost-control that payment systems sometimes become. As important as saving a percent or two of transaction turnover is, effective payment systems can do even more for you: they control risk.

Two risks under consideration

For the moment, consider a couple of kinds of risk: internal fraud and currency exchange. Most businesses have reasonable procedures in place, and lose negligible amounts through either of these for the most part. Two greater hazards than the dollar losses of normal "shrinkage", though, are: the extent to which these losses distract management from the strategies and execution on which it should focus; and "Black Swan" events that can overcome any plan.

How do modern payment systems help with these? Digitized or automated systems not only reduce "friction" or cost; they also enhance transparency. Whether implemented as ERP (Enterprise Resource Planning) or P2P (Procure to Pay) or some other rubric, good automation makes it easier to do the right thing--follow defined policy--and harder to hide misbehavior. You don't want people moving money the wrong way, whether accidentally or deliberately. Comprehensive, rapid introspection on transactions of the sort digitized systems provide helps shine a light in any dark corners left in your payment procedures.

Similar principles apply in currency exchange. The point of a smart hedging operation--think of the widely-admired fuel traders for Southwest Airlines--is not to make profits; it's to eliminate losses, or, more precisely, to make operations more manageable. Managers need to be able to concentrate on operations without worrying that supply prices are out-of-control because of what Greek voters are doing to the euro, or how Latin American tourist traffic in Miami and Houston suffers when the dollar strengthens. Ignoring these realities makes them no less real. A smart company finds a way to control, rather than be victimized, by them.

Ideally, this would be a banking function. Your every-day commercial bank could have the expertise to advise you about how to lay off currency exposure. For historical reasons that are tedious to explain, this isn't realistic in the US at the moment; most companies are left to their own devices in hedging exchange vulnerabilities.

An earlier installment of "The Payof" mentioned the TransferWise startup, which appears still to be growing on schedule. Also ambitious in this niche is The Currency Cloud (TCC), a startup which emphasizes its expertise in software and financial services as distinct realms, and explicitly touts transparency as one of its benefits. TCC positions itself as a Software-as-a-Service (SaaS) "platform" for solving currency-exchange problems. TCC is targeted for the organizations large enough to be annoyed by high PayPal or bank fees, but not large enough to have the clout or time to work around them. As Steven Calascione, Director of a TCC affiliate, expresses it, "our proprietary technology gives our clients the leading edge they need to stay ahead of the game and focus on their core business, instead of ... chasing service providers for the 'best price'. This is hugely a time-consuming exercise and a 'hidden cost' that impinges on a company's ability to remain focused and competitive."

As you evaluate payment systems, therefore, keep in mind that, as much as you want to make costs low, it might be even more valuable to make them predictable.

Looking ahead

In the coming weeks, we'll examine MasterCard's latest response to "m-commercialization" and how the Summer Olympics might affect your cash registers.

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