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The U.S. Treasury Department's strong embrace of electronic payments will have an impact beyond beneficiaries of entitlement programs who eagerly search their mailboxes for a government check each month. It also could be the impetus for driving greater customer adoption of electronic payments in industries such as insurance -- welcome news for insurers eager for ways to reduce operations costs and enhance customer service. But to take advantage, insurers of all sizes must start rethinking their antiquated payments infrastructures with an eye towards widespread electronic payments adoption.
The Government Goes Electronic
Over the past decade, payments have rapidly migrated from paper checks to electronic transactions. In 2009, more than 75 percent of all U.S. non-cash payments were made electronically – a stout 9.3 percent annual increase since 2006, according to a 2010 Federal Reserve's study. Most telling, between 2006 and 2009, check payments continued to decline and were eclipsed by debit cards as the most used non-cash payment instrument in the U.S.
Facing heightened pressure to reduce costs and increase the convenience, security and timeliness of payment delivery, the U.S. Treasury Department plans to completely migrate to electronic payments by 2013. Treasury will require individuals receiving Social Security, Supplemental Security Income, Veterans, Railroad Retirement and Office of Personnel Management benefits to receive payments electronically -- either through direct deposit into a bank account or the Treasury's Direct Express debit card. Today, various government agencies send 136 million paper checks to millions of people each month. The Treasury's plan builds on the U.S. Department of Agriculture's successful five-year-old program for distributing food stamps via Electronic Benefit Transfer (EBT). According to agency evaluations, EBT has reduced the food stamp program's costs and fraud, without impacting service.
It's these types of benefits that got the U.S. Treasury Department's attention. By moving to electronic payments, Treasury expects to save $400 million and 12 million pounds of paper over five years. The department estimates it could save $48 million a year on postage alone.
What's in it for Insurers?
Regardless of industry, processing paper checks and remittances remains expensive.
But aside from the cost savings associated with reducing the volume of paper checks, the electronification of payments helps insurers accelerate processing and clearing, reduce errors, improve visibility into receivables, and eliminate information float, all enhancing corporate agility.
Here are some benefits insurers can achieve by migrating to electronic payments:
- Consolidated systems, reducing maintenance and upgrade costs - Support for emerging payment channels such as mobile
- Speed posting, clearing and customer records - Improved response times to customer inquiries
- Simplified audit, tracking, reporting and compliance
- Eliminated information gaps - Readily available data across the enterprise workflow
- Streamlined returns processing
Electronic payments also are key to customer service. In fact, the majority of insurance carriers surveyed by Celent in 2009 cited enhanced customer service as the clear business case driver for payments solutions -- topping decreased costs, increased revenues, and improved risk management in underwriting. With these findings in mind, it's not surprising that 66 percent of the survey respondents said they view payments processing as both a service and a financial function.
Supporting the gamut of payment mechanisms is one way insurers can leverage their payments infrastructures to enhance customer service. While most (54 percent) insurance customers still pay with paper checks submitted via U.S. Postal Service, insurers are seeing increased adoption of online bill payment -- and most are developing comprehensive plans to increase adoption further. As this migration occurs, servicing all payment channels will be critical to the insurance experience. Customers are demanding the ability to pay from any location -- home office, branch office, landline telephone, smart phone or Web -- using their preferred payment type -- check, cash, card or ACH.
What's more, digital archive solutions can radically improve customer response times and integrate customer service research and report delivery, providing better visibility into a customer's account.
By consolidating paper and electronic payments, insurers also can leverage a single dashboard for workflow monitoring, operational statistics, cash position and real-time status. Similarly, a unified payments approach enables insurers to integrate consolidated accounts receivables (A/R) outputs with storage, retrieval and analysis. Multiple payment systems often mean multiple reports or files. Consolidating all payments from all channels, using a single extract file that contains all data and images, reduces the time spent updating A/R and eliminates errors related to manual input.
About the Author: A 15-year financial-services veteran, Mike Tallitsch is vice president of corporate solutions for WAUSAU Financial Systems, a provider of payment and receivables processing solutions. He can be reached at [email protected].