Payment Trends

This information is based on research with Federal Reserve Board data. Here are links to the actual reports.

2007 Federal Reserve Payments Report

2004 Federal Reserve Payments Study

Non Cash Payment Trends

Here are general payment trends for non cash payments from 2000, 2003 and 2006 based on consumer payment data from the Federal Reserve Board.

You can see that by 2003 electronic payments passed checks. By 2006 it is painfully clear that the vast majority of your customers prefer to pay electronically.

Online Card Payments for Monthly Bills Pass Check Payments

In the Spring of 2007, according to a study done for CheckFree, 37% of the number of payments for bills that are mailed monthly to customers were paid online while 34% were paid by a check being mailed back with the bill. This was the first time online payments had exceeded checks mailed in.

The Primary Reason for Online Payments is Control of the Timing of the Payment

Most of these online payments were made at the biller's site. At the biller's site the customer can be absolutely sure the payment was received and applied. They have a time-dated receipt. Almost 90% of all customers that pay online bills also pay a convenience fee to avoid late payments.

Not What My Staff Surveys Tell Me

I know this will run counter to what some of you may have found in surveying your staff. All I can say is your staff are telling you what they think. The Federal Reserve is telling you what is actually happening.

The Rise of the Debit Card

Here is the breakdown of the types of electronic payment used as a percentage of all electronic payments.

Debit card payments passed credit cards for the first time in 2006. Credit cards are declining as a percent. ACH is basically flat and is the least preferred electronic payment option of consumers.

Do Demographics Matter?

The Federal Reserve studies found that age, education, income, sex, race and marital status had very little effect in determining card usage. Pretty much everybody is participating in this major behavioral change.

Decline in Usage When Fee is Charged

The other interesting data the Fed had was real data on decline of card use when a fee is included. The Fed study was based on a 1.8% fee charged by banks for the use of a non signature debit card. This fee resulted in a 12% decline in card usage. To be honest, I would have thought it would be much higher.

It's All About Convenience

The #1 reason the Federal Reserve studies give for the use of electronic payments is convenience. As an example, in a study of grocery check out lines they found paying with a card reduces time to check out by 30%. For insurance, you should add the convenience of paying after hours.

I saw young lady in a gas station pay almost $3 for 2 Aleve tablets. Why? Because she had a need and the gas station fulfilled that need in the most convenient way.

• People are willing to pay for convenience.
• People don’t like change.
• If you are the convenient option, your customers will be less likely to change.

My point is this…

1. Based on these studies you have to conclude that your customers not only currently prefer to pay with cards, they are going to prefer that payment method even more over time.
2. A fee will decrease usage, but not as much as you would think.
3. If you make this payment option available but not required, then instead of you, me or your agents making the choice based on what we think, your customers will be allowed to make their own choice by their actions.

Imagine a Gas station that doesn't take credit cards….how long would they survive? They might be all right today but what about 6 months from now or a year from now? If the trends continue they would have turned away business that will be costly to get back.

This leaves you with the problem of the extremely high cost of accepting card payments. This is exactly the problem our "Convenience Fee" program solves.