Top Payment Trends for Community Development Entities

JPMorgan Chase remains a strong and consistent partner in the affordable housing and community-focused development space. The Community Development Banking group has helped create or preserve over 134,000 affordable housing rental units while committing over $22 billion toward financing affordable housing.

Partner Insights spoke to Alana Lesniewski, treasury management officer of Community Development Banking at JPMorgan Chase, about emerging trends in the treasury space. Lesniewski is based in New York and brings a combination of treasury experience and market savvy to her position.

Commercial Observer: How has treasury automation evolved over the years, especially in real estate?

Alana Lesniewski: Prior to 2000, treasury operations were largely a manual process which involved a lot of paperwork, spreadsheets and labor-intensive data entry. Basic automation began evolving as innovative payment methods became more prevalent.

The trend soon gave us innovative payment solutions such as Apple Pay, PayPal and digital rent payment platforms. Automation now includes efficient reconciliation which helps streamline cash management. Over the last decade, the industry’s main focus has been to move from paper to electronic payments in an effort to become more efficient, eco-friendly and reduce cost. As real estate is an incredibly high-volume business, with a slew of accounts and services needed for each new building, automation has impacted the real estate industry more than most. This has allowed real estate companies to grow exponentially as their underlying treasury functions are equipped to handle the growth without needing more employee resources.

What trends do you foresee in treasury automation, and how should clients prepare for these changes?

Future trends are all about finding ways to become more efficient by saving time, money and resources. While some clients still reconcile only monthly, we recommend avoiding any kind of manual reconciliation, and are encouraging clients to switch to a daily reconciliation via a “host-to-host” transmission. It’s an electronic connection between the bank and the firm’s enterprise resource planning (ERP) system to automate the process via BAI2 files, a universal file format and cash management standard.

It’s also important for clients to keep their ERP systems up to date to ensure seamless integration with their financial institutions. JPMorgan Chase has formed strong partnerships with leading property management systems to ensure seamless integration for our clients.

Unfortunately, I also find fraud to be an ongoing trend, but the automated functions offer advanced security measures that are baked in with our platforms such as J.P. Morgan Access, where we have multifactor authentication and encryption. Our fraud protection includes a wide array of solutions such as Check Positive Pay and ACH Transaction Review to ensure accounts are protected from fraudsters.

What benefits are there to automating community development treasury functions?

Reducing possible errors that arise through manual processing and cutting costs to free up working capital are two of the biggest benefits. Streamlining workflows frees up resources which can save processing time. The time savings allows staff to focus on more high-level and value-add activities such as additional development, strategic planning and community engagement, which are key areas of emphasis for our community development clients.

Enhanced reporting is another direct benefit that produces more detailed and customized data. Community development clients often have more stringent disclosure requirements for LIHTC deals, so automation can make a positive impact.  Being able to report up specific data on a real-time basis to federal, state and city agencies is important as they often ask developers for things like check images or an audit trail for a construction disbursement. Additionally, reconciling receivables like Section 8 voucher payments, which often come in as an unidentifiable lump sum, can be streamlined through automation.

What specific nuances should the community development industry consider regarding their treasury operations?

Clients working in the affordable housing arena are often dealing with a complex financial mix that includes rent revenue, vendor payments, New Markets Tax Credit, Low-Income Housing Tax Credit, Historic Tax Credit and various government funding streams. Similar to reporting, making sure that your account structure is following all government agency requirements for LIHTC deals is important to stay in compliance and streamline your overall operations.

For example, New York and New Jersey require detailed tenant subaccounting for security deposits, Tennessee requires an escrow retainage account to be opened in the name of the GC until the project is complete, and cities often require Blocked Account Control Agreements to be placed onto reserve accounts for their benefit. These nuances can be tough to navigate, so making sure that you work with a bank that can help you properly structure your accounts and provide the types of treasury and cash management services needed to stay in compliance, are necessary for any affordable housing developer.

What challenges do clients often face during the automation process and how does JPMorgan Chase assist in overcoming these challenges?

The most common issue for our clients is tied to time and resource constraints. As many clients in the community development space are nonprofits, accounting and technology teams can be quite small compared to the size of the company. Taking the time to fully understand and undergo the transition to automation is a big step, as the initial integration with existing systems can be challenging.

The good news is that we provide integration support by offering solutions to enhance connectivity and speed up the process. Application Programming Interface (API) plug-ins and host-to-host transmissions make these types of transitions seamless.

We also have dedicated technical specialists and project managers who work closely with the client during the entirety of the implementation. The goal is minimizing the effort and complexity while getting this automated channel set up. Putting in the time needed to adopt the system pays off sooner as opposed to later, and is typically a one-time effort.

The last challenge is user adoption. We find that sometimes clients may resist change to new systems or new processes. Throughout the transition process, JPMorgan Chase offers individualized training to ensure clients are comfortable operating in new systems.

How does JPMorgan Chase support clients in managing change and maximizing the benefits of treasury automation within their organization?

We have several niche groups that can address specific client needs. JPMorgan Chase helps ease these transitions by offering tailored resources and training to support client needs throughout the entire process. We also provide ongoing support and regular touch points until the client is ready to go out on their own. Whether you are a new or existing client, a dedicated service representative and relationship team is assigned to support your company throughout the life of your relationship at our Firm.

What does the future of rent collection, vendor payments and fraud protection look like for folks in the community development space?

The future is bright for our clients in the affordable housing space, especially as we lean into emerging treasury automation trends. On the rent collection side, JPMorgan Chase has been investing in technology and solutions that allow for payments via methods that don’t require a bank account, utilizing apps and digital banking solutions that most affordable housing tenants already use. This allows for both a simpler and much cheaper way to pay on the tenant’s end, and a faster and more consistent way to collect rent on the owner’s side.

For vendor payments and fraud protection, the industry is moving toward one-stop-shop solutions where you can automatically send one file directly from your ERP, and the bank will utilize this to cut checks, send ACHs, and make corporate card payments all on your behalf. This frees up your payables staff to work on other items, as the bank manages this process for you. Additionally, the payment register is automatically uploaded to the fraud monitoring system to ensure no unauthorized payments are being posted against your accounts. It’s a continuous evolution as we pivot to more automated processes for rent collection and vendor payments.

Rome wasn’t built in a day. It will take time to build the best and most efficient treasury setups. When talking to clients, I mention that it can be a time commitment to maximize and optimize their treasury setup, but as we move forward the cost savings show up quickly.