By James Dean
Vice
President
The electronification of payments across the enterprise provides
significant opportunities to reduce payment expense, increase
payment security, and improve control over disbursements for the
banking, insurance, and health care industries. For banking, it also
represents revenue-generating opportunities from services that can
be offered to clients—both commercial and retail.
Costs vary by company, but consider that a single check can
represent $7.50–15.00 of direct and indirect costs—versus an average
cost of $0.15 per electronic payment. Now apply those savings to the
hundreds of thousands (or more!) of checks written by a firm each
year. It is a wonder that electronification is not one of the top
priorities of every CFO.
Ideally, a company should have a multi-year strategy to drive the
firm to a nearly checkless environment over time. There are many
electronic payment methods—EFT, ACH, and Check21, to name a few—but
a single method typically will not satisfy all the payment needs of
a single firm. Therefore, the company (usually under the direction
of the CFO) must examine and categorize the different types of
payments made by the firm—vendors, customers, consumers, or
governments; international payments; recurring and one-time
payments—and determine the appropriate electronic payment
methodology plus an implementation plan for each.
Prepaid cards are quickly becoming another mainstream tool in the
electronic payment arsenal. Unlike credit cards, they have no credit
lines and interest charges attached to them. Unlike debit cards,
they use omnibus accounts (not individual accounts) thus reducing
operational costs and overdraft fees. Today’s prepaid card platforms
use cutting-edge technology and provide much more control and
functionality than credit or debit platforms. For instance, prepaid
allows consumers to set triggers for text messages to be sent to
their phone when card balances reach a pre-set level, a purchase
occurs, or they have successfully received a new load of funds. As
they cannot go over their limit, it helps consumers budget and
provides an electronic record of all of their spending.
As an indication of industry growth, there are now more than 30
different prepaid card products; whereas just a few years ago, there
were about 10. The types of products range from the ubiquitous
single-load gift card to payroll cards for the under-banked to
insurance claim and catastrophe cards. The health care industry is
also actively using prepaid cards for HSA, HRA, and FSA account
management.
Demonstrating a broadening acceptance of the cards, many states
now use them as child support payment tools. More than 27 million
enrollees in food stamp programs carry the cards, and the cards have
been approved by most states for use in worker’s compensation
indemnity payments by insurance companies. The U.S. Navy even uses
the card technology for sailors’ payments aboard ships. And prepaid
cards are now the only payment method the American Red Cross relies
on for distribution of emergency funds to catastrophe victims.
Certain prepaid products, such as the payroll card, are being
heralded for their ability to bring the under-banked into the
financial services industry, and there are now services to build
credit scores through prepaid card use. President Clinton, the
keynote speaker at the National Prepaid Card Expo this February,
highlighted this valuable community service. It was well-appreciated
kudos for the bankers in attendance. During this difficult time, it
is rare to receive positive financial industry PR.
Adding further value to our consulting services on the topic of
electronification of payments, Nolan was recently accepted as a
member of the National Branded Prepaid Card Association (NBPCA). The
mission of the association is to promote and educate the industry,
government, and consumers about the benefits of prepaid cards. We
are the only consulting firm to be a member and are looking forward
to working with the leading card networks, processors, and banks in
this field.
We have also teamed up with the NBPCA to conduct a survey of
regional and community banks and credit unions. Through the survey,
which will take place in the near future, we hope to determine to
what degree these markets are offering prepaid card products and
what the NBPCA and card brands could do to support the growth of
this specialized market. Many of the products can be an excellent
way for their issuers to capture additional deposits, win new
customers, and offer additional customer and community
services—driving both loyalty and revenues. If you are on The Nolan
Newsletter mailing list and in this market, you will receive an
invitation to participate in the survey and learn the results.
In the domains of payment electronification and prepaid cards,
the Robert E. Nolan Company offers strategy development, feasibility
studies, and implementation services to the banking, insurance, and
health care industries. Please contact us if you would like to learn
more about these services.
