NationalACH

Archive for October, 2009

According to consulting firm Treasury Strategies losses caused by fraud could result in the closing of as many as 10 financial institutions within the next three years. According the Barry Barretta, a principal at Treasury Strategies, “Fraud risk in the industry is at an unprecedented level.”

Small banks are the hardest hit by fraud because they do not have the money to spend on adequate fraud protection tools nor the capital to absorb the losses caused by fraud. But, even larger banks could be impacted, particularly if they reduce spending on anti-fraud weapons. And the poor economy has more fraudsters than ever hunting for holes in bank security.

Often, fraudulent transactions come from transactions from third parties, rather than direct bank customers. This makes it more difficult to track transactions and slows down the time that it takes to discover fraud.

Sophisticated gangs for fraudsters have insiders working as employees at the bank. It’s also easy to get existing employees to become informants since some mid-level employees feel no loyalty to institutions. The insiders pass on how financial transactions flow, bank practices, and system access codes. The fraudsters then have all the information needed to scam millions from the banks.

Visit nationalach.com for info on ACH payment processing.

Three-quarters of online economic users – those Americans who use the internet to keep up with news about the economic recession or their own personal finances – go online to relax and take their minds off of the recession, according to a 2009 survey by the Pew Research Center’s Internet & American Life Project.

Listening to music and watching online videos are among the most common of the activities evaluated. Approximately 50% of all online economic users have done each of these activities to relax. Approximately one in three online economic users have played online games or chatted with friends (on a social networking site, listserv or other online group), while an additional 22% have taken their minds off of their economic or financial circumstances by creating or posting content online.

Young Americans in particular go online in great numbers to relax by watching videos, listening to music, playing games or chatting with friends.

While much entertainment is free on the internet, people are willing to pay for digital content, virtual goods, and entertainment that are unique or not readily available for free. Alternative payment options such as electronic checks and local bank transfers are excellent additions to credit cards to capture more of the dollars being spent when relaxing on the internet.

According to data from the Federal Reserve Bank of Kansas City, the cost of accepting PIN-debit cards rose 305% between 1996 and 2007. The data are based on information from Star, Interlink, NYCE, Pulse, Accel/Exchange, Shazam, Jeanie, Networks, AFFN, and Maestro electronic funds transfer networks.

The average interchange cost to a merchant for a $50 POS purchase processed on a PIN-debit card with an EFT logo in 1996 was 9.9 cents.  In 2007, for the same purchase, merchants paid 40 cents in interchange fees. For branded Visa or MasterCard debit cards, interchange on a $50 POS purchase is about 67 cents.

The reason for the increase is not that it costs more to execute an electronic transaction. Indeed, the actual costs for electronic funds transfers have significantly decreased.

The main reason for increased interchange is so that the EFT networks can pay issuers more money. The card issuers are the ones who receive the bulk of interchange fees. EFT networks motivate the banks to direct cards to particular networks by giving them more money from interchange.

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The EFT network industry has faced consolidation over the last 20 years and competition among the remaining networks is fierce. Still, it hardly seems fair that merchants are accessed fees that EFT networks use as payola to the issuing banks.

Paper checks for ongoing consumer expenses such as rent, mortgage, utilities, and taxes are rapidly being replaced by electronic payment processing. Consumers expect to be able to pay bills online. Companies that to offer electronic payment options to their customers satisfy customer demand while increasing operational efficiencies and improving cash flow.

A study by Hitachi Consulting found that, from 2001 to 2008, paper-based payments decreased from 78 percent to 38 percent of all bill payments, while electronic payments grew from 22 percent to 62 percent.

Consumers are comfortable with electronic bill payments. From 1999 to 2007, the number of online households in the U.S. that pay bills online rose from 3.6 million to 42.3 million in. With online payments, consumers pay their bill faster, avoid late payments penalties and easily track payment history.

In addition to improving customer satisfaction, companies offering electronic bill payments reduce the costs associated with processing paper-based payments, reduce exposure to bad checks, and help ensure payments are made on time. Recurring payments for customers provides a stable revenue stream by helping ensure on-time payments.

ACH payments are the perfect vehicle for online bill payment.

Carla Balakgie, CEO of the Electronic Transactions Association says that the current economic condition and malicious fraudsters with criminal intent are among the biggest problems facing the payment processing industry.

According to Balakgie, the downturn in the economy is the biggest problem facing payment processors. Credit is tight. Consumer spending is down. And merchants are faced with a slow-down in retail sales. The situation is not likely to change anytime soon. Consumers are less able to take on additional debt and lenders are continuing to make credit difficult to obtain.

Merchants are keeping a close eye on payment processing costs. Sales organizations selling payment processing have to offer benefits other than low rates. Offering alternative payment processing options is one good way to add value to current merchants and to acquire new ones.

Another important consideration is protecting merchants from fraud. Online fraudsters have become increasingly sophisticated and target any weak links in the payment processing electronic transaction flow. It is crucial to have a ongoing payment processing strategy in place to block fraudulent transactions and handle any security breaches quickly and effectively.

ACH payment processing info at nationalach.com

According to researcher Mercator Advisory Group, the load volume on open-loop, also called general-purpose or network branded, prepaid cards will surpass load volume on closed-loop cards by 2012.

In its sixth annual prepaid card Mercator said users loaded $187.2 billion onto closed-loop cards last year, up 4.3% from 2007’s load of $179.6 billion. Mercator estimated that network-branded prepaid cards offered by banks and payment processors had a 2008 load value of $60.4 billion, up 48.5% from $40.7 billion in 2007.

Network branded cards provided by government agencies to disperse funds from various entitlement programs showed strong growth. For example, the U.S. Treasury Department’s new program to pay Social Security benefits to unbanked or under banked via pre-paid cards resulted in $1.2 billion being loaded onto the cards last year and forecasts are for $7 billion in 2009. Load volume on unemployment-insurance prepaid cards was $5.9 billion last year and will rise to $11.2 billion for 2009.

Closed loop cards are still strong in some markets. For instance, load volume on digital media cards grew 24%; consumer incentive cards, 19.3%, and petroleum cards, 23.2%.

ACH payments are one way to load a prepaid card.

Demand deposit account (DDA) is a basic banking product. However, once a customer establishes a DDA account with a bank, cross-selling of other products will make the account more profitable and will result in long-term customer retention.

It is fairly easy to calculate the profitability of a direct deposit account. Value is established by adding debit card revenue, net interest income, and cross-sell revenue and subtracting expenses, such account service and maintenance, check processing, ATM maintenance, and the cost of rewards.

The key to increased revenues from DDA is cross-selling. For example, if a bank encourages consumers to increase the use of debit cards at the point-of-sale instead of using cash, banks can boost revenues through increased fees generated by the transactions and incremental net interest income. Debit card use increases the daily balance in DDA, generating higher net interest income for the bank.

Strengthening and cultivating customer relationships is important to retaining accounts and is not difficult to do. Monitor consumer behavior and be proactive rather than reactive.

Train customer service reps to resolve disputes quickly and, as much as possible, in favor of the customer. Use rewards programs to motivate behavior changes such as using debit cards more frequently. Give customers an easy way to locate the bank ATM’s so they don’t have to pay unnecessary ATM fees. Use mobile technologies to stay in touch with consumers and protect them from fraudulent transactions.

ACH payment info at nationalach.com

The largest debit card issues in the US, Bank of America and JPMorgan Chase announced major changes to their overdraft-fee policies. The changes came in response the government pressure due to the rising number of consumer complaints about excessive fees.

Senator Christopher J. Dodd, who is chairman of the Senate Banking Committee, promised to introduce legislation that would require banks to get customers’ permission for overdraft programs. Two overdraft regulation bills already have been introduced in the House of Representatives. And the Federal Reserve in January mandated better overdraft disclosures starting Jan. 1, 2010, and is considering further regulations.

According to Federal Deposit Insurance data, banks’ service charges on deposit accounts had risen from $16 billion in 1994 to $39 billion in 2007, most of that driven by NSF-fees. Overdraft fees have been pure gravy for debit card issuers with NSF fees on signature debit cards accounting from 30% to 50% of total the revenue issuers earn on these cards. A $5 debit card purchase on an overdrawn account can easily the cardholder $35 to $40 because of the NSF fees.

According to a 2008 FDIC study of bank overdraft programs 74% of DDA accounts an incur no NSF/overdraft fees, but 5% of accounts incurred 20 or more NSF transactions annually and accounted for 68% of fee revenue.

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