Payment Trends – Simply Easier Payments

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.

	2000	2003	2006	2009
Check	57.8%	45.3%	30.6%	22.0%
E-Pay Total	42.2%	54.7%	69.4%	78.0%

You can see that by 2003 electronic payments passed checks. By 2009 it is painfully clear that the vast majority of your customers prefer to pay electronically.

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.

Type of E-Payment	2000	2003	2006
Debit Card	27.01%	35.28%	40.35%
Credit Card	51.18%	42.78%	34.61%
ACH	19.91%	20.12%	21.28%

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.

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 a 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.

The point is this:

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.
A fee will decrease usage, but not as much as you would think.
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.

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

Other Major Industries Turn to Third Party Service Fee Solutions

Accepting credit card payments through third party services has been a trend in other industries over the past several years.

Utility industry,
Educational institutions (the University of Missouri and N.C. State for example),
Tax collection industry (IRS, state income, county and municipal property taxes)…

These industries have all instituted online Service fee programs to enable their customers the ability to choose voluntarily to pay by card as a secondary alternative to the still available methods of paying by check or cash.The logic behind the use of Service fees is very well summed up by the following quote from the University of Missouri web site…

“As part of our ongoing effort to provide excellence in education, the University has focused on our costs to process credit card payments. These costs are approximately $2,000,000 per year; therefore, we have decided that the Cashiers’ offices will no longer accept credit card payments on student accounts. A third-party processor will handle MasterCard and Discover card payments.”