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.
