The New Era of Electronic Payments

With an increase in past-due and delinquent accounts spurred by layoffs and decreasing incomes, debt collection departments have taken on more work. According to the American Banking Association, delinquencies jumped to 2.02 percent in the first quarter of 2003 from 1.64 percent in the fourth quarter of last year (AP Online, “Credit-Card Delinquencies Unchanged in 1Q,” June 26, 2003). In early 2003, the Federal Reserve reported overall household debt had increased at a double-digit pace for the past five quarters. Additionally, the Fed said, household debt increased at a 10 percent annual rate in the first quarter of 2003, with mortgage debt increasing at a 12 percent annual clip (Associated Press, All Business, “Can – or Will – Consumers Keep Spending?” July 2, 2003).

Fueled by this ever-increasing amount of consumer and commercial debt, debt collection industry revenues have reached an all-time high (The Kaulkin Report, 5th Edition, Debt Collection: An Industry in Transition, August 2001). To stay ahead in the market, many departments are exploring innovative ways to service consumers effectively while still obtaining the necessary payments to meet their bottom-line needs.

With electronic bill-payment systems, collection departments can secure a payment over the phone or online via electronic check, credit card or debit card. While this technology is nothing new, the benefits of using more efficient electronic payment options continue to increase.

To obtain these payment services, a collection department most often turns to a service provider with expertise in creating and settling electronic payments, not only to save money, but also to ensure compliance with existing regulations.

How It Works

One commonly used process, called ACH (which is used to send payments electronically), eliminates much of the paper handling that slows the check-clearing process and increases cash flow as payments are accepted more quickly. According to the First Federal Savings Bank, ACH can save businesses as much as 62 cents per transaction (First Federal Savings Bank, Benefits of ACH Origination). Payments are collected from consumers via touch-tone telephone and state-of-the-art interactive voice response (IVR) technology. This eliminates the need for interaction with a customer service representative (CSR).

However, when a payment is past due, the customer is contacted by a CSR, who utilizes the electronic payment system by requesting the customer’s checking account information over the phone. The CSR then enters that information into the system via a software-based or Web-enabled application and confirms the transaction amount. While on the telephone with the CSR, the customer verbally authorizes the transaction, either as a check draft drawn on the customer’s bank account or as an ACH transaction, depending on how the business chooses to set it up.

Lucrative Proposition

Debt collection departments can implement electronic payment systems in an economical way, largely because most consumers are willing to pay a small fee to have a payment accepted and considered on time, rather than compound an existing delinquent or overdue account.

In fact, collecting on overdue debt before a customer’s account goes delinquent can be a lucrative practice for companies. Another added bonus of electronic debt collection is time saved in handling and managing transactions. By using a technology option that creates a real-time customer payment profile, CSRs are empowered to make informed decisions about the optimum payment method while on the phone with the customer, improving the odds of actually receiving payment. For example, if the customer has a history of insufficient funds, the CSR can direct the customer to a location where he or she can pay in person with cash — thereby guaranteeing funds.

Collection departments play a large role in making a company successful, even more so during a bleak economy. That said, they must use current tools to support and expedite payment processes in order to remain competitive and provide superior customer support in the market today.

Brett Noser is Vice President, Business Development, Western Union Commercial Services. He can be reached at [email protected].

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