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

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Presentation on theme: "Silver or Gold, Debit or Credit Steve McArthur AMCORE Bank, GFOA Advisor."— Presentation transcript:

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 2009:E13% 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 Forecasting41% STP to A/R32% More efficient reconciliation31% Fraud control29% AFP 2007 Survey Results

6 Barriers to Increasing Use of Electronic Payments Difficult to convince customers to pay electronically32% Customers lack ability to pay electronically25% Internal shortage of IT resources for implementation38% 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 @ $30 = $1,500) Time to create new internal policy and procedures (30 hours @ $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 Fee1.9% ($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 1. Checks93% 2. ACH Debits35% 3. Credit Cards17% 4. Debit Cards5% 2007 AFP Payments Fraud Survey

29 References Payment Card Industry Standards: 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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