How New York Transformed from an 18th-Century Laggard Into a Payments Leader

It isn’t often that a municipality is recognized for its work in the payments space. But that’s what happened Tuesday when NACHA, governing body of the automated clearing house network, gave a New York City department its George Mitchell Payments System Excellence Award for transforming the city’s decentralized, inefficient and largely paper-based payments and receivables-management operations into a model of 21st-Century efficiency.

NACHA cited the city’s Department of Finance, Citywide Payments and Receivable Services (CPRS) “for pioneering achievements and vision in electronic-payments acceptance,” according to a news release. “CPRS proves that a dedicated team of individuals can make government more efficient, effective and responsive to customers by focusing on improving service, expanding options, managing risk, reducing costs and using new but proven technologies.”

The change-over began in 2010 under a directive from then-Mayor Michael Bloomberg’s office, according to Sarah Knapp Smith, assistant commissioner in the Finance Department. The directive provided “not a lot of specific direction” and largely left implementation to a small group of finance officials, Smith told a session at NACHA’s Payments 2015 conference in New Orleans.

The nation’s largest city has 35 municipal agencies, processes 29 million transactions and collects $50 billion annually in tax payments, fines, fees, license purchases and other transactions. When the directive came down, the agencies used more than a dozen mainframe computer systems that were 20 or more years old, according to Smith.

Departments handled “hundreds” of different types of transactions that were mostly manually keyed into the computer systems, and they had implemented a variety of sometimes conflicting payments policies and procedures. Credit card terminals were few and far between. Some departments also had signed expensive payments-related contracts with vendors. “Essentially there was no consistency across the city at all for our customers,” said Smith.

David P. Kurrasch, a consultant who worked with the Finance Department on the project, told the NACHA audience that a city official, in a reference to the consummate New Yorker and first U.S. secretary of the Treasury, opined to him that, ‘“I don’t think we’ve had a new payments strategy in New York City since Alexander Hamilton.’” Kurrasch is president of Alameda, Calif.-based Global Payments Advisors Inc.

The changeover took three years and $10 million in capital expenditures, much of which went to new software, according to Smith. Point-of-sale systems also were replaced.  While much of the work involved corporate payments, other aspects brought more electronic payment options, including online payments, to the city’s 8.4 million residents. “We were able to take credit cards for property taxes for the first time,” says Smith.

A key part of the new system is a central electronic repository, to which agencies send receivables. The repository in turn sends agencies their remittance data. The repository also provides receivables data from all agencies to payment-services providers, who deliver payments and remittance information back to the repository.

All the while, the Finance Department team had to work, sometimes delicately, with officials in other departments that, apart from accepting payments, had little concern for the mechanics of transactions.

While the new system was largely complete in 2013, making the input and processing of payments largely electronic, the city continues to explore new payments options. Next week it will begin a test of mobile wallets at a payment center in Brooklyn. Last December the Finance Department issued a request for information from suppliers about enabling the payment of parking tickets through mobile devices. That project is still under development with no timeline, but Smith said she expects a mobile-payment option for parking violations eventually will be added.

Herndon, Va.-based NACHA also gave a second George Mitchell award this year, to payment card-accepting hardware and software provider VeriFone Systems Inc. for its leadership in education and training for the coming of Europay-MasterCard-Visa smart cards to the U.S.