Viewpoint: The Case for B2C Digital Payments
By Alex Liu and Brian Greehan, Bank of America Merrill Lynch
Every day we hear about the demands of mobile consumers. For those of us who serve corporate clients, enabling electronic payments to those mobile-centric consumers is critical. But going digital goes well beyond helping businesses cater to customer preferences, it also saves money, helps reduce fraud risk and improves efficiency.
The average cost of processing a paper check is $6 and can be as high as $25.1 Compare that with the average internal costs of electronic payments of $1 or less per transaction, and it’s easy to see how, according to Aite Group, U.S. merchants alone could save $1.7 billion annually by eliminating disbursement checks. In fact, 82 percent of companies point to cost-saving as the No. 1 reason to move away from paper. Even sending plastic prepaid cards is less expensive than sending checks, especially for recurring payments.
Another compelling benefit to consider is fraud prevention. Nearly 75 percent of companies suffered payment fraud attacks in 2016, according to the “AFP Payments and Fraud Control Survey.” Checks were the primary fraud target for 71 percent of the surveyed firms. That’s because checks come with relatively soft defenses: Criminals can intercept them in the mail and then alter or cash them. Checks may become even more tempting for thieves as cards in the U.S. migrate to EMV, making card-present fraud more difficult. Businesses that replace checks with electronic payments, such as prepaid cards, can save money, mitigate check fraud exposure and improve audit reporting.
Prepaid cards also make compliance easier. Every year, a significant number of checks are returned due to bad addresses or simply go uncashed. Companies then need to comply with varying unclaimed property rules across all 50 states—a daunting and costly administrative responsibility. By transitioning from checks to prepaid cards, companies are able to shift this escheatment responsibility to their card issuer. Once a company completes a payment via prepaid card, the card issuer is responsible for any escheatment requirements.
Lastly, the efficiency of prepaid should not be overlooked for a host of disbursements across a variety of verticals:
- Utility companies—for deposit refunds and customer incentives
- Retail—for returned merchandise, deposit returns and consumer incentives
- Corporate expenses—for conference travel, per diems or company-paid relocation
It Comes Back to the Phone
As we mentioned earlier, catering to mobile consumers is a must. Three out of every four minutes U.S. consumers spend online is via Web-enabled mobile devices, according to Web measurement firm comScore. As consumers start using mobile to pay each other, it’s only natural that they’ll expect businesses to pay them that way, too.
Each payment use case is different. ACH is commonly used for employee payroll as there is a trusted relationship between employee and employer and the payments are recurring. In instances where the payment is a single non-recurring item, the business might not want to gather or maintain personal bank account information and instead chooses to use an email address or mobile phone number to complete the payment. Insurance claims payments are a good example. At Bank of America Merrill Lynch, we’ve seen an increased interest in our innovative payments service, Digital Disbursements, where individuals can be paid electronically without needing personal bank account information.
However, for the millions of Americans that don’t have a bank account or for the thousands of organizations that a) may not know if the recipient is banked; b) may not have bank account information or even an email or mobile number or c) are concerned primarily with escheatment, the prepaid card remains a highly efficient tool, addressing all three of these concerns.
No doubt the legacy pull of checks will continue for some time. Not all companies are ready to toss aside years of tradition and bureaucracy because they don’t understand the myriad benefits of doing so. Payments providers that can offer electronic solutions, including prepaid cards and mobile payments, that reduce costs, improve security and meet consumer demand, will be able to take advantage of a huge opportunity in B2C payments.
Alex Liu is responsible for Bank of America Merrill Lynch’s commercial and government prepaid card strategy, new product development, and ongoing product management and maintenance. He has 15 years of experience in prepaid. Prior to joining Bank of America Merrill Lynch, he was responsible for global prepaid strategy and products addressing financial inclusion at MasterCard. Alex was named one of Paybefore’s 5 Rising Stars of Prepaid. He may be reached at: [email protected].
Brian Greehan leads business development for card and comprehensive payables across the bank’s middle market, including the specialized industries of health care, higher education, and state and local public sector. In addition, Brian manages business development and account management across all industries for prepaid cards. In this role, he is tasked with understanding changing market dynamics to be sure Bank of America Merrill Lynch can help provide the payments products and services to meet evolving client payment needs. He may be reached at: [email protected].
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.
1 2015 AFP Payments Cost Benchmarking Survey; Best Estimated Cost for issuing a paper check on a per item basis—mean: $5.91, median: $3.
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