By Patti Murphy
The Takoma Group
It's the end of April. Another Earth Day has come and gone, and a group of banks and other organizations decided the time was ripe to push electronic bills and payments as eco-friendly. It's a great idea. The only problem is pricing for electronic payments doesn't always seem to make sense.
I discovered this the hard way, when a rather small payment I was due from an overseas client arrived at my bank as a wire transfer and the bank assessed me a $30 acceptance fee.
Now, of course, the bank is not entirely to blame. I mean, what company uses an international wire transfer system to send out a payment for a few hundred dollars? An automated clearing house (ACH) payment would have been less expensive and probably would not have cost me a penny. Heck, it might have even been less costly to pay an international express delivery charge for a check.
I bring up this example because it represents what I perceive as a disconnect between the rhetoric about electronic payments and the reality of electronic payments.
If consumers and businesses are to be swayed to use electronic payments instead of checks, there needs to be a monetary incentive and a clear understanding of what's involved.
For example, if the payment amount is relatively small ($1,000 or less), an ACH payment would be more practical than a wire transfer. Even a credit or debit card payment would be a better option.
Wire transfers are intended for large dollar transactions, which tend to be riskier for banks to handle, hence the high cost of acceptance.
According to the latest data from the Federal Reserve, however, businesses these days represent nearly 40 percent of all check writers and 72 percent of all payees.
In a report released in March 2008, the Fed also stated that payments from consumers to businesses represented nearly half of all checks written in 2006, the most recent year for which data is available.
That report, the second installment of the 2007 Federal Reserve Payments Study, details the composition of the check market based on a sample of nine large financial institutions.
George Thomas, founder of Radix Consulting Corp., is a big proponent of using ACH for business to business (B2B) payments. A former executive at The Clearing House Payments Co., which operates the chip wire transfer system as well as an ACH processor and SVPCo., he worked for years to promote B2B applications. "If we ever want to see businesses move away from checks, it will take strong leadership from the industry," Thomas said in an e-mail.
PayItGreen Alliance, an initiative launched earlier this year by NACHA - the Electronic Payments Association, appeared to take one step in the direction of a paperless society.
NACHA has brought together an alliance of financial services companies and billers to help educate consumers about the environmental and financial benefits of letting go of the paper in their lives and embracing electronic bills, statements and payments.
According to a study commissioned by the alliance, if one in five households went paperless, the collective impact would annually save 151 million pounds of paper, avoid filling 8.6 million household garbage bags with waste and save 2 million tons of greenhouse gas emissions from polluting the environment.
The study, performed by McLean, Va.-based technology consulting firm Project Performance Corp., revealed that the average household receives about 19 bills and statements and makes approximately seven payments by check each month.
Collectively, the production and transportation of those paper documents consume 755 million pounds of paper, 9 million trees and 512 million gallons of gasoline, the firm estimated.
"Turning off the paper and managing your finances electronically may seem like a small action, but it can have a big environmental impact," said Stuart Williams, Director of Payment Services for CheckFree and co-chair of the alliance.
"If 20 percent of households switched to electronic bills, statements and payments, we would save enough gasoline annually to drive from New York to Los Angeles and back 918 times and preserve more than 12,000 acres of land from deforestation," Williams said. In addition to CheckFree, other PayItGreen participants include AT&T Inc., Bank of America Corp., Citigroup Inc., Consolidated Edison Inc., the Federal Reserve banks, JPMorgan Chase & Co., U.S. Bancorp, Wachovia Corp. and Wells Fargo & Co.
Drawing on earlier studies, the alliance has come up with some compelling messages to help financial institutions and billers move consumers away from paper. Here's a sampling:
PayItGreen's has more details on its Web site (www.payitgreen.org) on how to compute waste with features such as a calculator to size up the amount an individual household saves by helping the environment and switching to electronic statements and payments.
What you won't find at the Web site, however, is a direct message to get corporate payers away from writing checks. It's great to see the industry working to wean consumers from paper bills and payments. But better than one in five checks (22.1 percent) today are business-to-business.
Maybe NACHA's next campaign ought to push businesses to wean themselves off paper and embrace electronic payments.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.
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