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Feditorial: New Research Indicates Financial Institutions Are Key to ACH Growth


Hank Bourgaux
Thursday, October 1, 1998

Electronic payments have been available to consumers and businesses for several years. The arguments for converting to these payments seem so convincing: They are faster, easier and cheaper. Why, then, are so many people still not convinced?

Earlier this year, the Federal Reserve System sought to answer this question by hiring two research firms to conduct an extensive survey of both consumers and businesses. At issue were two of the most popular electronic payment methods, direct deposit and direct payment (or automated bill payment). Some of the results surprised us; some didn't. But one important point emerged from the research-financial institutions are uniquely positioned to further the demand for these ACH services. The research showed that consumers and businesses are looking to their financial institutions, more than any other source, for information on direct deposit and direct payment. The message is clear: You have the power to influence your customers' attitudes about electronic payments.

Also apparent from the research is the public need for more education. Among consumers, direct deposit was a much more understandable concept than direct payment. Nearly all of the respondents said they are familiar with direct deposit. Meanwhile, a larger number of consumer respondents said they are not familiar with direct payment. Furthermore, research showed that adoption of direct deposit and direct payment was low among businesses. Only 13 percent of businesses surveyed offer direct payment to their customers, while just 32 percent make direct deposit available to their employees.

We also learned that opportunities abound for growth within each service, especially if incentives are offered to potential customers. For example, a majority of consumers who were offered free checking along with direct deposit of their payroll indicated their overwhelming willingness to accept direct deposit. If you as a financial institution are contemplating whether to expand your ACH service offerings, this research clearly demonstrates that demand for direct deposit and direct payment exists among a large segment of consumers and businesses.

The St. Louis Fed has summarized the results of the research in a booklet that we will send to each financial institution in the Eighth District later this fall. I ask that you take a few minutes to read this summary. Eventually, I hope that the results will propel financial institutions, as well as the Fed, into leveraging the efficiencies of the ACH system and generating more effective means of encouraging customers to use electronic payments.