Payment Migration: The Turning of the Tide
Welcoming Chris Allen and Aaron
Bright
Upcoming Conferences
Attention Remittance Processors!
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The Federal Reserve recently released its latest study documenting the changes taking place in the payments industry. The Payments Study tracks the volume and value of all payments in the U.S., and the shifting mix between paper and electronic payments. This issue of On Payments provides a review of the 2004 Federal Reserve Payments Study, which was released in December, and discusses some of the implications of changes in non-cash payment volumes.
To sign up for an online subscription to On Payments, please click here.
Payment Migration:
The Turning of the Tide
“Suddenly, the long ballyhooed check-less society seems visible in the distance because user behavior is shifting, competition has heightened, technology has opened new doors, and economics are changing....the world doesn’t seem so safe if you make your living in a paper world.”
—Rich Oliver, EVP of Retail Payments, Federal Reserve
As demonstrated by the recently released 2004 Federal Reserve Payments Study empirical data indicates that the tide has turned. Paper checks are receding from the U.S. payments landscape, and the majority of non-cash payments are now conducted using electronic means.
At some point during 2003, electronic payment volume eclipsed check volume. The 2004 Payments Study shows that checks paid declined at a compound annual rate of 4.3% between 2000 and 2003. During this same time period, electronic payment volume grew by 13.2% annually. As a result, the ‘tipping point’ has finally been reached: electronic payments accounted for 55% of non-cash payments in 2003, up from a 42% share in 2000.
Although checks are expected to be around for the foreseeable future, evidence suggests that the number of checks being written is declining at an accelerating rate—and the number of checks being paid is declining even faster.
As consumers and businesses migrate to electronic payment methods, check usage is being displaced by increased use of card-based payments and online payments. On the processing side, ACH check conversion, mergers, and Check 21 substitute checks will stimulate image clearing of paper checks, and are likely to reduce the number of item passes and related revenue opportunities.
Among the various types of electronic payments, card-based payments grew the fastest, with debit cards leading the way, followed by credit cards. Payment cards are increasingly popular with consumers, some of whom are attracted to the ability to access credit and concentrate purchases, while others are attracted to the convenience and control provided by debit cards. Card use is also being promoted on both ends by merchants and issuers. Merchants continue to deploy new POS devices to support card payments, and many issuers are using credit and debit card loyalty programs to incent consumer use. Recent acquisitions of PIN debit networks by credit card companies and core processors indicate the importance of debit cards to the payments industry.
For financial institutions, the implications of this evolving payment landscape are serious. Critical deposit and DDA-based revenues are at risk; costs may rise with diminished paper processing economies of scale; and branches may becomes less important as there are fewer checks to be deposited. On the other hand, organizations that embrace this migration and proactively manage their payments business stand to gain significantly. Successfully executed, bank payment migration strategies are capable of benefiting from these changes and increasing earnings per share by approximately 1%.
To read the full article (PDF), please click here.
Welcoming Chris Allen and Aaron Bright
We are pleased to announce two recent additions to our consulting staff, Chris Allen and Aaron Bright.
Chris helps strengthen our expertise in payments and retail banking. Prior to joining Dove, Chris spent nearly four years focused on debit product management at MasterCard, including helping to significantly improve their debit value proposition. Before MasterCard, Chris was a vice president at JPMorgan Chase responsible for small business payment products, a vice president at US Bank responsible for consumer transaction products, and a vice president at Fleet Bank in commercial banking.
Chris can be reached at: callen@doveconsulting.com or at 617-753-9250.
Aaron joins us from National Grid, where he was a Financial Analyst in their Investment Management area. Prior to National Grid, Aaron worked in consulting as an Investment Performance Associate at Cambridge Associates and as an Audit Intern at Arthur Anderson.
Aaron can be reached at abright@doveconsulting.com or at 617-753-9277.
Upcoming Conferences
NACHA’s Payments 2005 conference is taking place in San Antonio, Texas on April 10-13, with 160 sessions addressing the latest developments and advances in the payments business.
The conference’s Payments Business presentation track will feature two speakers from Dove: On Monday, April 11, Jo Preuninger will be presenting “The Role of Payments in New Customer Acquisition & Retention,” which will provide insight into the correlation between payments behaviors and customers’ retention and profitability, employer acceptance of bank-managed direct deposit switching, biller research into recurring payments switching and set-up, the economics of switching services, and the evolution of a switch center. Later that day, Ed Bachelder will be discussing the implications of “The Tipping Point for Electronic Payments,” which will highlight findings from Dove’s Electronic Payment Instrument Study, conducted on behalf of the Federal Reserve.
BAI is hosting its annual TransPay conference in Orlando, Florida from May 2-5, bringing together financial institution executives, industry experts and solutions providers to share information and insights related to the transition from paper payments processing to electronic.
Tony Hayes will be chairing a special pre-conference workshop dedicated to ATM operations on May 2-3, which will focus on the role of ATMs – today and tomorrow – and how deployers can enhance their efficiency. Presentations from thought leaders across the industry will cover ATM network strategy, ATM channel management, ATM profitability management, developments in deposit automation, and ATM risk management, and the future outlook. Dove’s clients are eligible for a special conference discount (to request this discount, please send an email to info@doveconsulting.com)
Attention Remittance Processors!
The Association for Work Process Improvement (TAWPI) is organizing a second Remittance Processing Benchmarking Study to be conducted this year by Dove Consulting, for the benefit of TAWPI's membership, financial institutions, remittance processors, corporate billers and solutions providers.
The 2005 Study will build on TAWPI's first Remittance Processing Study that was conducted in 2001, and will provide benchmark data from best-in-class processors across multiple industries, an overview of remittance business trends and six sigma initiatives in remittance operations, and identify new practices and technology for back-office and distributed capture.
To participate in the study, or to learn more, please click here.