When Alan Koenigsberg asks for a show of hands from who doesn't get paid via direct deposit, it hardly matters that it's during a conference call. The ubiquity of the virtual paycheck, with adoption well north of 60 percent, means Koenigsberg, vp and global ACH senior product manager of JPMorgan Chase's Treasury Services, safely assumes not a single hand was raised over the telephone.
But new research from NACHA-whose marketing arm Koenigsberg chairs when wearing his trade-group hat-shows more unexpected usage gaps in the direct-deposit and ACH payments system. A new survey shows direct-deposit usage is twice as high among medium-sized businesses-80 percent-versus small businesses-37 percent. And ACH is also lagging.
An underlying theme to the research is that small businesses consider ACH services a large business concern. Why should small businesses reconsider that?
Overall, ACH provides simple, safe and secure channels to use an electronic payment method. It can streamline your back office. Really, all of the same points that we've made for the last 30 years with larger companies. The nut we have to crack is more from a marketing perspective. What this research is telling us is you have to continually get out in the market.
Besides direct deposit usage, this divide also pertains to the business-to-business payments arena?
That's where the biggest opportunity is, not only in small or medium-sized businesses, but even in large corporate and financial institutions. You're going to probably see, maybe in the next two to three years, the most significant growth engine in ACH will come from B-to-B payments, as [indicated by a] Federal Reserve study showing check [volume] coming down faster and faster.
What are the prime barriers?
The research itself tells us the most common misconception is that direct deposit is "not for me." Many small-business owners are former employees of big businesses. They may think from their paradigm that ADP or Paychex [serve] big companies, but there are whole hosts of third-party payroll companies out there that serve a very small market, that serve small businesses. A very good example of a small-business payroll provider is Paycycle. Their sweet spot is two to 12 employees. Credit issues [may also be] a challenge. Oftentimes, small businesses have to be pre-funded for payroll services, because ACH is a batch-and-forward system and the risk of return is out there. But, like funding a check, small businesses have to know the money has to be in the bank before the ACH is issued.
Is Check 21 aiding business-to-business payments?
Check 21 was sort of pitted in the beginning against ACH. And, of course, it really isn't true. They work hand in glove. Remote deposit is a very good example of a way you can use Check 21 and ACH together to capture payments at a business's point of sale location. You can capture them remotely, and then print an IRD, or [send to] another side of the country for presentment. I had the opportunity recently to speak to an Association for Financial Professionals group out in Los Angeles that is primarily public sector, small businesses and middle-market companies, and if nothing else they knew what Check 21 was. You can thank the vendor community for perhaps scaring them, saying, "You have to do something," even if they didn't. But they made [businesses] much more aware, so if you start with Check 21 and become aware, it's an entree to talking to your banker and perhaps get that briefing on all the other products and services, even direct deposit and payroll, on the ACH side that you can take advantage of.
What kind of marketing activities is NACHA undertaking as a result?
May was national direct-deposit and direct-payment month, and we did a significant amount of marketing in the industry, from national radio, local radio, national magazines like Parade magazine [A Newsweek ad will run in the fall]. We do see a lift internally of awareness in impressions as a result of that advertising. We also work with regional payment associations that face off on a day-to-day basis with businesses and consumers all over the country to equip them with the marketing materials that they need to talk with their markets as well. We've also embarked on a very significant project to build out our presence on the Internet. Right now there are many resources you can leverage. One is the check-conversion education Web site www.checkconversioneducation.org]. There's directdeposit.org and directpayment.org, which are hosted by the Federal Reserve.
What kinds of opportunities do the survey's results provide for banks?
The results speak for themselves. There's such a significant growth opportunity here in these markets. We've just scratched the surface in penetration from direct deposit, payroll and other services...and going back to customers and talking to them about, "Where are your challenges? What kinds of payments do you make to employees? And what can we do to help you get those automated?" You tend to think direct deposit is old and saturated. Hardly. There is so much opportunity out there.
