Title: Silver or Gold, Debit or Credit
1Silver or Gold, Debit or Credit
- Steve McArthur
- AMCORE Bank, GFOA Advisor
2When is a decision, not a decision?
- Accepting electronic payments is expected by
customers. - Processing costs, everything considered is often
cheaper. - Fraud prevention, can be more effective
- Posting errors may be reduced
3Receiving and Billing
- Receiving
- Direct, recurring payments
- At the point of sale
- Phone
- On time, on-line
- Credit
- Debit
- Billing
- Paper and electronic
- Electronic only, paper on request
- Services only
- Tax
- Licenses and User Fees
4Just give me the money!!
- 2000 60 of payments were checks
- 2003 50 of payments were checks
- 19 were Debit Cards
- 23 were Credit Cards
- 8 were ACH
- 2009E 13 of payments will be check
- 49 will be Debit Cards
- 18 will be Credit Cards
- 19 will be ACH
5Top Benefits Cited for Receiving Electronic
Payments
- Cost Savings 59
- Improved Cash Forecasting 41
- STP to A/R 32
- More efficient reconciliation 31
- Fraud control 29
- AFP 2007 Survey Results
6Barriers to Increasing Use of Electronic Payments
- Difficult to convince customers to pay
electronically 32 - Customers lack ability to pay electronically 25
- Internal shortage of IT resources for
implementation 38 - AFP 2007 Survey Results
7Cost of Processing
- Trend Checks are decreasing in volume, Fed
continues to close check processing centers - Price to clear paper checks has risen and will
continue to rise
8Payments Convergence
- Definition The migration from paper to ACH
- Remote Deposit Capture- converts paper at your
office into an ACH - Lockbox Services
- On-Line- Paying all bills on-line (Growth rate
equal to 3 per year) - Automated Payments
- Decreased usage of Credit Cards? Affinity
programs losing popularity?
9Advantages
- Reduction of time to clear the customer account
- First in, first out- reduce of NSF checks
- Automated electronic copy, may be sorted for
updating A/R files
10Customer Consideration
- Customer Notification
- Consumers must be given notification that their
check may be converted to ACH. They have the
right to opt-out if they take certain action.
History has proven less than ½ of 1 opt-out. - Statement stuffer
- On-line notification
- Counter notice
11Cost Consideration
- Equivalent or less than clearing paper
- Some equipment may be needed
- Scanner if using RDC - 300 and up
- Lockbox- varies from 0 to a few pennies
- Reduced storage and copying requirements
- Reduced effort to post payments
12Definitions of Terms
- ARC- Accounts Receivable Conversion A check is
received for deposit but then converted to an ACH
item - WEB- Web or internet initiated. No paper is ever
issued, but check number and info is used - POP- Point of Purchase
- TEL- Telephone created
13Getting Started
- Some methods are as easy as calling your bank,
notifying your customers, and turning the key! - Internet payment options offer more challenges,
including unique data integrity and security
concerns. - Internal written procedures are often neglected,
but are vital.
14Policy
- Authorizations- define who has access to what
information - Audit Trails- establish for all electronic
payments, they will be different from paper - Segregate Duties
- Supervisor Review
- Background Checks of Employees
- Timely Bank Account Reconciliations- Specify
15Credit and Debit Cards
- Merchant Card Services
- Provide an entry point into a clearing system
- Third party- industry dominated by a few players,
banks- while offering the service- are rarely the
actual providers - Fees and rules apply
16Fee
- Discount the amount deducted from the amount
the customer pays. Negotiate! - Per Item
- Method- Manual, dedicated line, dial-up,
internet, terminal style, color - Type of Payment
17GFOA Recommended Practice
- Benefits
- Increased certainty of collection
- Reduced return check processing cost
- Accelerated payment and availability
- Improved Audit Trail
- Reduced Cashiering Cost
- Enhanced Customer Convenience
- Increased Participation
- Improved overall Cash Flow
- Reduced Collection Cost
18PCI Compliance (Payment Card Industry)
- Significant requirement and responsibility for
Governments - Attempts to safeguard information and ensure
integrity of the industry - Third party service providers may reduce this
contingency - Failure to comply may result in significant
financial penalties.
19Convenience Fees
- Consider whether or not to charge a convenience
fee. They may be used to recoup the cost of
merchant fees. - Disadvantage is that they may deter some from
using cards. - Card companies have strict (and confusing)
regulations that limit the use of convenience
fees.
20Getting the numbers
- Adding more payment options will require more
procedures, redundant systems, and add liability - Benefits will accrue when you begin receiving
enough volume to get benefits that will offset
cost. - How?
21Break-Even Methodology
- Time and hard-cost to create/evaluate the RFP for
Merchant Card Services. (50 hours _at_ 30
1,500) - Time to create new internal policy and procedures
(30 hours _at_ 30 900) - Training staff (16 hours X 4 X 30 1,920)
- Upgrade A/R System (2,500)
- Added Audit Fee (1,000)
- Total Start Up Costs 7,820
22Per Item Cost / Savings
- Discount Fee 1.9 (3,000,000 charged, 6,000
transactions) 57,000 - Reduced Return Check Processing (reduced 50,300
fewer at 30) 9,000 - Accelerated Availability one day, 170
- Reduced Cashiering, 25 of one person, 31,000
- Increased sales (1 growth) 30,000
- Net first year 5,350 positive
23Two Keys
- Maintain tight control of fees paid to card
processors and third parties - RFP Process
- Risk Management
- Gain Rapid Participation
- Fast volume equals fast breakeven
- Reduction of legacy payments reduces cost
24RFP Outline
- Intro- special attention to what will be
collected, estimated volume, average ticket - Equipment needed
- Settlement period
- Reports
- Fees
- PCI Compliance
- Convenience Fees
- Data Security / Disaster / Liability
25Selling the Service
- Demographics are always in your favor!
- Take a page from a sales manual make electronic
payments the second option you present! (Auto
debit is always the first) - Use electronic billing.
26Payment Consolidators
- Third party service providers
- Receive all payments regardless of the form
lockbox, auto deduct, credit/debit cards - Deposit into your bank
- Present payment reconciliation to you in one
format
27Electronic Bill Presentment
- Most cost efficient method- reduces paper and
printing, postage, time delay, and encourages
electronic payments. - Improve internal processes, reduce errors,
integrate with bank, A/R, and constituent
relationship management system - Strong relationship to automated bill payment
28Security and Fraud
- Percentages of Organizations that Reported
Payments Fraud Activity in 2006 - Checks 93
- ACH Debits 35
- Credit Cards 17
- Debit Cards 5
- 2007 AFP Payments Fraud Survey
29References
- Payment Card Industry Standards
- https//www.pcisecuritystandards.org
- GFOA Recommended Practice
- Acceptance of Credit and Debit Cards
- GFOA Recommended Practice
- Payment Consolidation Services
- AFP 2007 Payments Fraud Survey
30Discussion, Success Stories