Silver or Gold, Debit or Credit

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Silver or Gold, Debit or Credit

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Decreased usage of Credit Cards? Affinity programs losing ... Credit and Debit Cards. Merchant Card Services. Provide an entry point into a clearing system ... – PowerPoint PPT presentation

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Title: Silver or Gold, Debit or Credit


1
Silver or Gold, Debit or Credit
  • Steve McArthur
  • AMCORE Bank, GFOA Advisor

2
When 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

3
Receiving 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

4
Just 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

5
Top 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

6
Barriers 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

7
Cost 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

8
Payments 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?

9
Advantages
  • 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

10
Customer 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

11
Cost 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

12
Definitions 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

13
Getting 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.

14
Policy
  • 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

15
Credit 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

16
Fee
  • 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

17
GFOA 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

18
PCI 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.

19
Convenience 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.

20
Getting 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?

21
Break-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

22
Per 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

23
Two 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

24
RFP 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

25
Selling 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.

26
Payment 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

27
Electronic 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

28
Security 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

29
References
  • 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

30
Discussion, Success Stories
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