Insurance companies lead the way with digital payments that lower friction and dramatically increase customer satisfaction.
Consumers these days routinely use their PCs or mobile phones to initiate electronic payments that land in another person’s bank account. A report issued in December by Javelin Strategy & Research found that 32% of U.S. consumers had transferred money from their bank account to another person using a laptop or PC, while 25% had done so using a mobile device, and 31% had transferred funds to someone else using a nonbank provider such as PayPal.
Companies’ heavy reliance on paper checks makes them look like dinosaurs compared with consumers, but that’s beginning to change. “All the innovation is happening in consumer payments, and business is trying to catch up to it,” said Dean Henry of the Global Treasury Services innovation and strategy team at Bank of America Merrill Lynch.
“There’s a whole population of consumers who want to interact with the people they do business with in a mobile way,” said Craig Vaream, managing director and head of North America payables and receivables at J.P. Morgan. “Look at the millennial group—they are less interested in receiving checks. Corporations need to provide a solution like this for them.”
Among the corporate innovators is insurer Allstate, which now makes claim payments to consumers using digital disbursements. The move was “really all about our customers,” said Lynn Cirrincione, director of cash and banking operations at Allstate. “This is one way we can help them to get the funds in their hands quickly.”
Fast Mobile Payments to Consumers
When Allstate approves a consumer’s insurance claim, the adjuster gives the customer a choice of being paid by check, by ACH, or digital disbursements. (Digital) payments are “significantly cheaper” for Allstate than sending a check, Cirrincione said. And from a treasury perspective, there are other advantages, she pointed out, including a reduction in the number of lost checks and related back-office costs, as well as fewer escheatment issues and the back-office costs those entail.
“Additionally, we’re hoping we will see some of our check fraud decline,” she said, as the electronic payments eliminate the chance that fraudsters might intercept paper payments in the mail.
Allstate is looking at whether other parts of the company could make use of (digital payments), Cirrincione said, citing the life insurance group and dealer services as possibilities. “We’re going out to each of the business areas and saying, ‘What checks are you writing, and are you aware of this process? Can we help you get this and see if it will help your business?’”
Asked about the potential for making business-to-business payments this way, Cirrincione said some of the customers that Allstate now pays using Digital Disbursements may be small businesses. The platform wouldn’t be suitable for larger businesses, she said.
“‘Big B to Big B’ is definitely something we have on our radar,” said Melissa Lowry, head of product and marketing at clearXchange, which was acquired last month by Early Warning. While the payment method works for small businesses, to be useful to big businesses it would need to be able to pass on all the information that companies need for reconciliation, she said.
Insurers Lead the Way to Digital Disbursements
BofAML’s Henry said Allstate is representative of the companies currently using the Digital Disbursements offering.
“The insurance companies, in the U.S. in particular, have a tremendous check problem where they’re looking at Digital Disbursements as a much less expensive way of sending reimbursements to consumers,” said Henry, pictured at left. “We’ve seen the most early adoption there, and we continue to add new clients to the platform within that industry.”
But Henry argued that Digital Disbursements could work for many other industries, such as airlines, government, healthcare, higher education, and oil and gas companies.
“We think there’s a huge play for this everywhere because paper checks are still used everywhere in the U.S.,” he said. “This can be a great alternative.”
Cost Advantage of Digital Payments
Cost is one obvious advantage of (digital) payments.
Nancy Atkinson, a senior analyst at Aite Group, noted that costs are difficult to determine because the internal costs to companies for things such as staffing, space, and hardware and software are not known. But she estimates that electronic payments are about one-third to one-half less costly than paper payments.
J.P. Morgan estimates that companies that use digital payments can save 50% of the cost of traditional paper-based payments.
BofAML’s Henry noted a 2015 benchmarking by the Association for Financial Professionals that put the all-in cost of a check at about $6. “A digital disbursement is much less than $6,” he said.
Henry said using Digital Disbursements also reduces security risk for companies because they’re not storing consumers’ bank account numbers and routing numbers that could be hacked. “They’re just storing emails, and clearXchange is the storage entity for the payment tokens,” he said.
But Allstate’s Cirrincione comes back to the issue of customer satisfaction. “I would stress to other companies that it really is a game changer,” she said. “It allows us to really do what our customers ask.”
Source: Susan Kelly, Treasury & Risk