Financial Update (January-March 1999)


Cover Story

Default-Risky Securities

ACH Survey

New ACH Trends

Direct Payment

Board of Directors Announcements


Did You Know?

Data Bank

The Docket

Fed ACH Survey Shows Openness
to Automated Transactions

T he number of bank customers using Automated Clearinghouse (ACH) functions has risen in the past few years, and the growth trend is likely to continue. To gain a better understanding of this growth and ways to foster it, the Federal Reserve System recently conducted a market research survey to determine consumer and business perceptions and attitudes about ACH transactions, such as direct deposit and direct payment. The survey showed that people who use direct deposit are pleased with the service and that people and businesses not using direct deposit would consider using it if incentives, such as free checking, were offered.

ACH Market Research Findings

The market research survey was distributed to 1,300 consumers, 900 businesses and 100 financial institutions. In addition, 14 consumer and corporate focus groups were held to explore some of the key issues about electronic payments.

Of the consumer respondents to the survey, 55 percent receive one or more payments by direct deposit. Among these users, 97 percent indicated they are extremely satisfied or very satisfied with the service they receive. Users said that they chose direct deposit because of its many benefits, including security, trust in the payment method, convenience, speed, consistency, and reduction of bank fees and transactions costs.

The study also reveals the potential for expanding direct deposit for payments such as expense and travel reimbursements, healthcare insurance reimbursements and payroll. The study showed that banks and businesses wishing to increase the number of customers using direct deposit should promote the security of direct deposit and focus on building trust and providing easy problem resolution.

The study also indicated that some consumers do not want to use direct deposit because they feel the need for personal recognition and control. Many of these individuals consider being handed their paycheck personal recognition for a job well done. But the study also showed that more that 50 percent of non-users would sign up for direct deposit if they were offered incentives such as free checking, written verification of payment or the benefit of having money deposited two or three days earlier.

The survey found that 32 percent of the responding businesses offered direct deposit to their employees. Of this group, 84 percent are large employers (over 100 employees), 64 percent are medium-size (50-99 employees), and 31 percent are small (1-49 employees). The majority of businesses using direct deposit consider the service an employee benefit, not a cost saver.

Surveyed businesses not using direct deposit indicated that some of the barriers to their offering direct deposit programs are the perception that it would be costly or that there would not be enough demand, employee turnover, insufficient knowledge of the benefits of direct deposit, and the fact that employees have not expressed interest in direct deposit or do not have accounts at financial institutions. These businesses indicated that the best incentives they could receive to offer direct deposit are compatibility with their general ledger system and free checking for employees.

Consumer Benefits of ACH

There are several benefits to using ACH transactions that businesses and financial institutions can emphasize to encourage customers to use ACH services.

For instance, direct deposit allows a company or organization to transfer money electronically into a customer's bank account. This feature saves an employee or supplier time otherwise required to deposit or cash a check and eliminates worry about lost, stolen or misplaced checks. And, since payments sent electronically are credited to the account on the payment date, employees and suppliers know that their money will always be in their account on the expected payment date and can begin earning interest immediately.

Through direct payment, consumers can authorize companies and financial institutions to electronically withdraw payments from their account on a predetermined date. With direct payment, a consumer writes fewer checks each month and thus saves the time required to write the checks and the postage required to mail them. By using direct payment, the average consumer, who writes 10 to 15 checks a month, could save between $38 and $60 a year in postage, according to the National Automated Clearinghouse Association.