Most, if not all, of us are familiar and comfortable with some form of electronic payments, even if we don't always realize it. Credit and debit transactions are electronic payments and rarely a day goes by when we don't make at least one of those! In truth, ANY non-cash financial transaction is an electronic payment. From paychecks to pensions, electronic payments are replacing the traditional methods of paying with cash and checks and they affect anyone with a bank account. Here is what you need to know to understand how they affect you!
ELECTRONIC PAYMENT METHODS:
Perhaps the most common form of electronic payment is
Direct Deposit, the 1st type of electronic payment that was developed. Direct deposit is used, mainly, for payroll transactions but has also become popular for tax refunds, pension payments, reimbursements and bonuses. Direct deposit is more secure than paper checks and it allows for faster access to money. According to
NACHA, the electronic payments association,
"3 out of 4 employees who have access to direct deposit use it while businesses can save between $.50 and $1.25 per payment by using direct deposit instead of checks." All Americans, however, are not so willing to use this process and it causes problems. According to the
U.S. Treasury,
"9 out of 10 problems with Social Security payments involve paper checks."
VISA USA estimates that 1 in 3 of all consumer purchases are made with a payment card - credit, debit and/or prepaid. That is a lot of plastic floating around instead of cash! With each passing day, it is becoming easier to use plastic and most of us have gotten out of the habit of carrying cash because we really don't have to. There is virtually NOTHING we cannot purchase by using some form of electronic payment.
The next generation of credit and debit payments is known as "contactless" or "proximity" technology. It was first developed by
Exxon Corporation in 1997, but has quickly spread to other companies and industries. It utilizes radio waves to allow customers to pay for purchases by just being close to the card reader. If we get close enough, we don't even have to get the card out of our wallets! Contactless payment does require specially equipped card readers and credit/debit cards with embedded chips to work properly. Because of that, the growth of this electronic payment is only as fast as the willingness and ability of merchants and credit/debit card issuers to upgrade their infrastructure. Contactless payments are linked to credit and checking accounts. Increasingly, these types of payments can be made for very small purchases and via cell phones.
For those of us that have recurring payments, making them electronically is making our lives easier!
Direct payments, also known as automatic debits, allow consumers to schedule payments for specific dates. This reduces the number of late payments and associated fees. Direct payments lower costs for companies by reducing the amount of paper and postage that is necessary for mailing regular bills. According to
NACHA,
"more than 1/2 of all U.S. households use direct payment for at least 1 recurring payment and 4 out of 5 consumers who use it say they are very satisfied with it."
ELECTRONIC PAYMENT PROCESSING:
The
Automated Clearing House (ACH) is a secure network that is responsible for processing electronic payments. It is the vehicle by which enormous amounts of money are transferred daily. In 2006, more than 15 billion ACH transactions were made. That number continues to increase as the use of all types of electronic payments becomes more common.
ELECTRONIC PAYMENT BENEFITS:
Obviously, electronic payments have some significant benefits. If they didn't, banks, merchants and credit card issuers would not be implementing the technology so rapidly. So, why use electronic payments? For merchants, financial institutions (and you and me), there are 4 basic reasons:
- Electronic payments are convenient because they are easier and faster than carrying cash.
- Electronic payments are cheaper than paying with paper because they are less expensive to process.
- Electronic payments are more accurate than paper payments and there is less liklihood of errors occuring during the data entry process.
- Electronic payments are more secure than paper payments because of enhancements and safeguards possible with current technology.
Will there come a day when paper payments are totally obsolete in the American economy? I don't know---maybe. I think it's possible but not very likely. After all, cash and checks still work, even when the power goes off and all the networks go down. For the time being, I'll keep a $20 bill in my purse just in case!
