Paper checks are definitely on the way out. There were 49.5 billion checks issued in 1995, falling to 30.5 billion in 2006, and just 24.5 billion in 2009, according to the Federal Reserve. Switching to electronic payments can be a major money saver. The U.S. Treasury switched to direct deposits and debit cards and retired paper checks. It’s expected that the move will save taxpayers $1 billion over the next decade.
Why aren’t more insurers following suit? Is there something holding them back from dropping the traditional paper check payment system? What can electronic payments offer and what are the potential problems?
Missing out on benefits
We know that check costs can be as high as $24 on average for a field claim. Consider also, that in many cases multiple checks will be issued in pursuit of a final settlement. The potential costs of sticking with checks are enormous. There’s no doubt that electronic funds transfer (EFT), prepaid debit cards, direct deposits, and mobile payments are all less costly.
Cost isn’t the only benefit. The insured can also get their hands on the money they need instantly with electronic payments. There are even new electronic payment platforms like ReStore that enable multiple parties to approve payments, replacing the traditional check counter signing process that is often required where a mortgage or lien applies. This enables speedy repair where necessary, boosts customer satisfaction, and makes retention more likely.
What’s the problem?
The business world in the U.S. is still attached to checks. They’ve reduced in popularity much more quickly in many other countries, but American businesses still pay nearly half of their bills using checks, and the Federal Reserve says 21 billion checks were written in the U.S. in 2012. That’s four times the number of checks written in the whole European Union over the same period.
Finding the right system
Any forward-thinking insurer will immediately see the benefit and potential of electronic payments to provide a better service for customers and save money in the process. Faster settlements lead to satisfied customers and policyholder retention.
The trick is to make sure that you choose the right partner and platform to handle your electronic payments system. Consider the importance of extensive banking networks for prepaid cards. Find a platform that can handle multi-party approval of electronic payments. Beware of hidden charges and limitations. If you choose carefully, there’s no downside to abandoning paper checks and considerable benefits for going electronic.