Making the Case for More ACH
By Josh Budd, Forte Payment Solutions
From infrastructure modernization, workforce challenges and funding concerns, local and state governments are under a great deal of pressure. This can trickle down to constituents and potential constituents, where both groups end up facing substantial challenges due to these same pressures.
Technology advancements are included in that list, as are payments and revenue. As both government agencies and constituents adopt online payment solutions, merchant processing fees also increase. Because of this, governments are evaluating and seeking alternative, convenient ways for residents to make payments that are safe and secure.
One solution that is garnering more interest is ACH payments. Offering this payment method via website or by Interactive Voice Response Pay-by-Phone can provide constituents with the variety of payment options they expect. Plus, current payment trends make ACH a viable payment solution.
Rapid Payments for Businesses
ACH payments, or e-checks, are payments that are processed directly from a payer’s checking or savings account, like a check but which are processed electronically through the Automated Clearing House Network . Many businesses operate exclusively through their bank accounts using ACH, eschewing the use of credit cards. Businesses contribute significant revenue to local and state government agencies, from fees to property and sales taxes. Without offering an electronic means to remit payments from a bank account, many businesses are forced into paying with paper checks.
While ACH sits in the middle of the rapid transfer of funds facilitated by credit cards and the universality of checks, it has historically been a less optimal solution for businesses due to transfer speeds and bank management overhead. However, based on the increased usage of B2B payments via ACH, businesses are realizing the benefits of this payment option in allowing them to keep tighter control on financials, as there is no “float” or delay in payments processing, no printing or mailing costs associated with sending a paper check, or bank charges for check processing. According to the NACHA, ACH B2B payments increased significantly in 2015.
Even more significant, however, is the increase in ACH usage by businesses since the launch of same-day ACH in late 2016. From late September to the end of 2016, $8.8 billion in B2B transactions used same-day ACH, confirming the importance of the payment method for business transactions.
Increased Online Payments Make ACH Cost-Effective
Online bill payment continues to be the payment method of choice across generations, but in particular for millennial consumers. Approximately 8.2 billion bill payments are made online in the U.S., while bills paid by check declined 20 percent between 2010 and 2016, according to a recent study. Offering online bill payments is an obvious requirement for government agencies.
Yet as noted above, credit cards can be a costly way to accept payments. ACH, on the other hand, provides a low-cost alternative that still allows for electronic payment processing. In most instances, it reduces processing costs by offering a flat rate instead of a percentage and it also might reduce the cost to residents if the agency is passing on a service fee. Digital checks are typically a low-cost flat rate whether absorbing or passing a service fee vs. the percentage based credit card costs.
Digital checks can save you money in less tangible ways over paper checks, too. Because paper checks must be received, handled, recorded, applied to an account and taken to the bank for deposit, there is a significant cost in labor for paper checks that may not be immediately obvious. Instead, ACH payments can be automatically applied to a resident’s account, with little intervention from government staff.
ACH Payments Cater to Diverse Audience
Government agencies must cater to a wide range of residents with diverse needs. Making the assumption that all payers who wish to use online payments can, or will, use a credit card to do so is a fallacious line of thinking.
The fact is the number of Americans who self-identify as having no credit card is growing and has been for some time. In a Gallup poll from 2014, 29 percent of those surveyed indicated that they didn’t have a credit card, up from 22 percent just six years earlier.
This is a trend we can expect to continue into the future as well. Millennials, the largest generation in the U.S., are making the choice to forgo the use of credit cards. By and large, this group is turning their back on cards, with 63 percent having no credit card at all.
This doesn’t mean, though, that this group doesn’t have a bank account. Research firm CCG Catalyst found that 90 percent of 18-to-35-year-olds have a relationship with a traditional financial institution but only 46 percent use a checkbook.
ACH fills the gap for this generation, who are now at the age when they’re living on their own, buying homes and having families. It provides a means for millennials to pay their bills online and corresponds to their preferred means of payment, eschewing credit cards and checks.
With upgrades like Same-Day ACH speeding up transactions, the significant cost-saving for government agencies (and potentially constituents, who might otherwise have to pay a fee to pay with a credit card), ACH is poised to supplant cards for government payments.
Josh Budd has more than 15 years of payment processing experience specifically related to government. This experience includes working with many of the largest government software vendors on large-scale integrated projects. He also served more than eight years with the Illinois State Treasurer’s Office as deputy director of the Illinois State Treasurer’s investment and electronic payments division before transitioning to Forte Payment Systems in 2011 Follow on twitter @FortePayments.
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