NationalACH

Archive for September, 2009

Online bill payments with electronic checks are fast becoming the preferred method of paying bills for millions of Americans. Within a year, web-based payments will account for more payments than paper checks.

According to NACHA, accounts receivables conversions (ARC), which is the code used to track paper checks sent to lockboxes for bill payments, registered 595 million transactions in the second quarter of 2009. This represents a decrease of 6.8% from 638.6 million transactions in the first quarter of 2009. It is a decline of 11.2% from 669.8 million transactions in 2008’s second quarter. WEB based ACH bill payments, increased up by 10.5%. WEB payments are now 94% of ARC payments and expected to continue to rise and surpass paper checks within the next few quarters.

The ACH network posted total volume of 3.83 billion transactions in the second quarter of 2009, up 2.5% from 3.74 billion in the prior-year quarter and 1.5% from 3.78 billion in the first quarter.

The of paper checks being written will continue to decrease. Many members of the younger generations have never written a paper check. Even though the demise of paper checks has been slow in coming, it will inevitably happen.

Direct payment is the term used for paying bills electronically through the ACH payments network.  Direct Payment goes by many names, including automatic bill payment, automatic debit, electronic bill payment, or direct debit. It can be used for one-time or recurring payments of all kinds, including loan and insurance payments, subscriptions, health club membership dues, utility and cable bills, and charitable contributions.

According to NACHA more than 50% of all  U.S. households used direct payment for at least one recurring payment during the past year, with close to 4 billion bills being paid with direct payments. Of those consumers using direct payment, 4 out of 5 are very satisfied with the service.

Electronically paying bills is quite safe. Problems with direct payment are rare.  If a problem should occur, it is easy to resolve. Customer payments are safeguarded by the Federal Reserve Board’s Regulation E. Consumers are protected from unauthorized debits from their checking and savings accounts and have the right to stop or reverse a payment they believe they did not authorize or was made in error.

Direct payments can be made on the billers’ website, through online banking bill pay, by telephone, or through a third party biller. Direct payment for recurring billing virtually eliminates late fees, which can easily amount to $30 per payment.

Benefits for business include eliminating the manual processes involved in handling check payments, which improves the accuracy, efficiency, and productivity of their day-to-day business operations.

Will the economic crisis really change the way American banks do business?  Highly unlikely.

There has been little fundamental change in banking practices.  Although the banks cut back on risks temporary, it’s only a matter of time before problems again occur.  And, big banks now know that, no matter what, big government will be there to bail them out.

Some big banks are far bigger today than in 2007.  An analysis by The New York Times shows that financial institutions’ combined market capitalization is smaller than it was at the peak two years ago, but that acquisitions have actually made JP Morgan and Wells Fargo bigger than in Oct. 2007. Four financial institutions - JP Morgan Chase, Wells Fargo, Bank of America and Citigroup – account for just over half of the market capitalization of the largest 29 firms, compared to about one-third two years ago.

Some banks are reporting big profits.  Much of this comes from the Federal Reserve’s subsidizing bank profits by keeping short-term interest rates near zero.  Banks pay almost nothing to borrow money that can be leant out at much higher rates.

On Wall Street, pay is still extraordinary high. For example, Goldman Sachs employees earn an average of $700,000 each.  Obviously, Wall Street is still rewarding short term risk taking with big bonus regardless of the long-term risk for the economy.

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The more payment processing options an ecommerce merchant offers buyers the more sales will happen.  Each new payment of option added at point of checkout results in a sales lift of 5-20%.

The vast majority of sales made by internet merchants are via credit cards.  Consumers still prefer making purchases online with credit cards over any other payment method.

Despite the popularity of credit cards, if a merchant does not offer multiple methods of payments, sales are being lost.  Adding new payment methods gives merchants the opportunity to capture as many sales as possible from consumers visiting their websites.

Amazingly, there are large segments of the population that do not have credit cards.  And among those that do, many still prefer to use other methods of payments.

Among debt laden Americans, a staggering number of consumers are within inches of maxing out their credit cards.  Even if a consumer wants to buy from a site, there is a real possibility that the sale will be declined because the buyer has exceeded the line of credit available on the credit cards.

Additional payment options enable merchants to profit from buyers who do not have cards, cannot use cards, or simply chose not to use credit cards for a purchase.

Certainly the easiest alternative payment option to offer buyers are electronic checks. Most payment processing gateways already have echecks integrated in the payment gateway.

It’s a simple matter to turn on the echeck functionality in the gateway.  There is generally little or no additional paperwork required.  Once enabled, a buyer simply chooses from a drop down menu whether the preferred method of payment is credit card or echeck.

Adding additional payment options is the fastest and easiest way to realize an increase in ecommerce sales.  Investigate the alternative payment processing options offered by the payment gateway.  You may find it a surprisingly effective way to increase profits.

Merchants selling on the internet that are not accepting electronic checks are losing business.  Offering electronic checks as payments can increase sales by 3-8%.  These would be payments for orders that otherwise would have been lost.  Depending on the ACH electronic check provider, echecks can also cost substantially less than credit cards for a merchant to accept as a payment method.

Accepting checks online will increase sales by reaching out to households and shoppers who do not have credit cards or do not want to provide credit card information online. One of the limitations of accepting online checks is that the echecks clear through the ACH network and take time to clear.  And, there is the risk of bounced checks.

Merchants should wait to ship products until the electronic check clears through the consumer’s checking account.  Merchants can get guarantees on online checks by paying extra discount points.  But, unless the average ticket on a sale is high, check guarantee doesn’t make sense because, over all, the cost of guarantee will be higher than bounced check losses.