Cheaper than Checks

Bank of America Merrill Lynch, Fiserv roll out products allowing companies to pay consumers via email, cell phone.

For years, consumers have been able to send payments electronically to friends or family members via an email address or cell phone number. Now companies are starting to catch up. Last month, Bank of America Merrill Lynch rolled out a product called Digital Disbursements that lets companies substitute such payments for checks, and Fiserv announced a business version of its person-to-person payment product, Popmoney.

The new offerings are seen as a way for organizations to more easily and cheaply make a range of disbursements to consumers. Possible uses include companies paying rebates and insurance claims, companies refunding overpayments, and governments doling out tax refunds.

An Aite Group survey conducted in 2012 suggests there’s a considerable opportunity in this area. Working from data that it gathered by surveying 1,115 U.S. consumers, Aite estimated that U.S. companies made $2 trillion worth of disbursements to consumers in 2011, while government entities paid out $1 trillion.

The total number of disbursements consumers received that year was about 1.8 billion, according to the Aite report. Tax refunds were the most frequent transaction; 35% of consumers who received a disbursement got a state or federal tax refund, while 16% received a rebate related to a product or service, and 10% were reimbursed for an overpayment. The report notes the role of disbursements in the “new economy,” including payments related to online markets and freelance work, and suggests such disbursements are likely to grow at a rapid rate in coming years.

Nancy Atkinson, a senior analyst at Aite Group, said business-to-consumer e-payments are “probably something that will take off, especially for disbursement types of payments, where there’s no bill or invoice involved.

“It is cheaper for the business, for sure, and it’s quicker for most consumers as well to receive the funds this way,” Atkinson said. She also noted the method’s “security advantages,” since companies can avoid having to have check stock on hand and secure it against theft.


Versions of Consumer Offerings

The products now being rolled out are business versions of consumer offerings that have been available for some time.

Bank of America Merrill Lynch’s Digital Disbursements employs the technology of clearXchange, a joint venture of BofA and three other banks. BofA has offered clearXchange’s person-to-person payments to consumers since 2012.

Ather Williams, Bank of America Merrill LynchDigital Disbursements payments occur via ACH. Ather Williams, head of global payments and GTS Strategy in the Global Transaction Services unit at Bank of America Merrill Lynch, said the way a Digital Disbursements payment flows to the recipient is the same as in the consumer-to-consumer version, but the way the company initiates that payment differs.

“In the consumer environment, you’re initiating through a mobile app or online banking,” said Williams, pictured at left. “For a large corporate, we’re getting a file, either through one of our channels or SWIFT.”

As the bank worked on the business version of the product, it focused on how that file was initiated and what kind of reporting companies needed in order to reconcile the payments, he said.

For a company to make a payment to a consumer using Digital Disbursements, the consumer has to opt in, Williams said. For example, if a company’s representative called a consumer to resolve a problem, the representative could present this type of payment as an option.

If the consumer wants an electronic payment and has already registered with clearXchange, he or she is all set. Otherwise, “there is a very simple registration process where you associate your bank account with your alias, similar to the process for opening up a PayPal account,” Williams said.

BofAML conducted focus groups to assess how consumers would feel about being paid this way and got a “resoundingly positive” response, Williams said, noting that people like the fact that they get their money faster. “We knew that we were going to have a success here so we started to build out,” he said.

The link between a consumer’s email address or phone number and the bank account number resides in clearXchange’s registry, not in the paying company’s records, and Williams said companies appreciate the security aspect of that. “The thing that was a big sale for our corporate clients was that they no longer had to retain sensitive bank account information and keep that information up-to-date,” he said. “All they have to retain is the alias.”

Williams noted that the solution won’t work for all business-to-consumer disbursements. For example, consumer health insurance payments still have to come by check because of the laws in some states and because the insurer has to send an estimation of benefits statement, he said.

BofAML estimates companies can save as much as 75% of their disbursement costs by using Digital Disbursements instead of paper checks. Williams said the product is also part of a transition to e-payments that will allow companies to realize efficiencies.

“When I talk to our clients, faster is not necessarily the holy grail. They’re thinking about better—they want seamless reconciliation, they want data to flow with the payment, they want to get out of paper,” he said. “The first step is to provide the capability to electronify those traditional paper payments.”

He also noted the possibilities for making digital payments in the business-to-business space, especially to companies’ smaller, less sophisticated suppliers. “Imagine the number of checks a Ford has to write to its Tier 3 suppliers,” Williams said.

Popmoney for Businesses

The consumer version of Fiserv’s Popmoney launched in 2009 and is offered by about 2,300 banks and credit unions. Now Fiserv has rolled out a version for businesses, called Popmoney for Disbursements, that it is marketing to banks to offer their business customers. Fiserv is also marketing Popmoney directly to insurers.

Popmoney uses ACH and EFT networks to make payments to email addresses, mobile phones, or bank accounts.

“Businesses of all sizes could use [Popmoney] as a means to get payments out to eligible recipients,” said Steve Shaw, vice president of strategic marketing for digital channels and electronic payments at Fiserv.

“At the companies we’re talking to, there are millions of payments they’re sending out each year via paper checks,” Shaw said, and cited the processing, mailing, and tracking costs involved with those checks. “It’s just a huge cost savings for [companies] to be able to do this electronically.”

Given the number of disbursements that companies make to consumers and the savings they might achieve by making those payments electronically, it seems surprising that it has taken so long.

Ron Shevlin, a senior analyst at Aite Group who worked on the 2012 survey, said “there has been a cost hurdle or cost barrier to changing things.”

He added that “making the shift to alternatives is not as easy as it would appear,” and cited the example of a company trying to make a payment directed via a consumer’s email address or cell phone number.

“Many of these companies have no customer phone or email,” Shevlin said, adding that depending on the organization involved, many consumers may be reluctant to provide that information.


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