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ReserveNotes

Study Shows Education Needed
on Direct Payment

This is the second article of a two-part series that began in the previous issue of Payments Quarterly.

A national market research study conducted earlier this year on Automated Clearing House (ACH) payments revealed some new facts about direct deposit.

Consisting primarily of focus groups and surveys to explore some of the existing attitudes toward electronic payments, the study also looked at current direct deposit and direct payment use among consumers and businesses, as well as their satisfaction with the services.

Following are highlights from the direct payment portion of the study.

Consumer Findings

• Confusion exists with the term direct payment. Many think the terms automatic withdrawal or authorized automatic payment more accurately describe electronic debit transactions.
• Many consumers do not really know how direct payment works--22 percent of users and 45 percent of nonusers indicated they do not understand direct payment well enough to describe it to a friend or colleague.
• More than one-third of U.S. households claim they use direct payment for at least one recurring payment. On average, direct payment users make 2.4 electronic payments a month.
• Only 84 percent of direct payment users are extremely or very satisfied with the service, significantly lower than 97 percent of direct deposit users who are extremely or very satisfied.
• Ease and convenience are the best attributes of direct payment, according to 75 percent of users. Saving time by not having to write checks was another recognized benefit, as well as not having to worry about paying bills on time or by their due date.

Business Findings

• Only 13 percent of businesses offer direct payment to consumers.
• Businesses offer direct payment mainly because customers request it and to improve customer service. Satisfaction with current methods of receiving payments, as well as lack of demand, are the primary reasons for not offering it.
• Businesses that offer direct payment rely on signing up new customers when they open new accounts, instead of targeting existing customers.
• Surveyed businesses said direct payment helps improve cash flow and saves time and money because of decreased check processing. They also cited improved reliability as a benefit because payments arrive at the same time each month, reducing late and delinquent payments.
• Only 47 percent of businesses use direct payment for their own bills. Greater potential exists if a discount from the bill is offered.

 

One of the most significant findings was that businesses and consumers depend primarily on their financial institutions for information about direct payment and direct deposit. They consider you the most credible and reliable source, which means your financial institution can play a key role in educating your customers and helping them understand electronic payments.

The St. Louis Fed's web site at www.stls.frb.org/banking/ach provides more information on this study.

Later this year, we will send all financial institutions a report summarizing the key findings from this research. If you have any questions about the research, please contact Cheryl McCarthy in St. Louis at (314) 444-8459.

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