Payment Options – No Longer Just a Nicety, But Rather a Necessity

Payment Options – No Longer Just a Nicety, But Rather a Necessity

Our country came to a screeching halt with the terrorist attack of 9/11. The movement of money, specifically checks, ceased as air traffic was grounded. Air travel had been the primary mode of moving checks between the Federal Reserve Branches. The resulting legislation to make sure this situation did not occur again was the Check 21 Act implemented October 28, 2004 allowing the image of a check to have the same validity as the physical check itself. Thus, the options became available to businesses and consumers to streamline how money is delivered and received between parties. Some financial institutions began to offer their business clients scanners (at a price) to scan their payments locally at their office instead of making the trip to the bank. This was seen as a huge leap in service. However, one could argue the positioning of the banks was to transfer the function of their tellers to their customers, but that is a conversation for another day. The implementation of the CK21 Act transformed how money was moved resulting in many of the ways we pay for coffee, complete on-line trading, pay bills, etc that we do today. While time has moved on, the insurance vertical held tightly to the old way of doing things via the conventional process of issuing checks. Holding onto the use of checks should not be considered a tradition, but more of a death grip on building interactive relationships with their policyholders.

So where do we go from here? Let’s consider three things!

CONSIDERATION #1: OPTIONS

Millennials, defined as those born from 1981 – 1997, expect the the companies they do business with to, not only be in tune with new technology, but to offer choices on how payments are delivered. This is important to consider because not all consumers fit into the same mold. Some may still want a check to be issued, while others may want the money transferred directly to their bank account. However, what about the 25% of today’s society who are either unbanked (or under-banked) who do not want to use a traditional bank? What about loading the money to a pre-paid card? Obviously, there are multiple ways to deliver money, which the carrier needs to address, but the carrier also has to be able to deliver the payment in a consistent and cost effective way.

Carriers offering multiple methods of payment to meet the needs of their policyholders will connect deeper and improve their brand with their customers.

CONSIDERATION #2: REAL TIME PAYMENTS

According to a report by the Federal Reserve [1], 69% of consumers prefer instantaneous payments within the hour. This is an extremely ambitious target, but how do we get there?

NACHA, the Electronic Payments Association, has established guidelines moving ACH (Automatic Clearing House) payments to a “same-day” model with 3 time windows daily. Currently, transactions are processed overnight. The first of three phases begins in September with the final phase being completed in Q3 of 2018.

Scott Lang, Sr. VP of Association Services points out in the EPC Newsletter titled “Realizing the value of Same Day ACH”[2] that one of the 63 different applications for “same day” ACH is that of making claim payments. In fact, this falls into one of the top 10 primary opportunities identified by NACHA. This will be a great application for catastrophe situations or those losses requiring the ability to get funds to the policyholder in a quick fashion, but still fails to address the holistic problem of multiple payment types and delivering data with the payment.

However, this is still only one piece of the payment options puzzle.

CONSIDERATION #3: RISK, COMPLIANCE & FRAUD

Risk and Compliance are the two top issues facing the banking industry. This is much like the fraud issue facing the insurance vertical. Multiple companies have created algorithms and/or created various predictive analytic tools in an attempt to decrease claims with fraud potential. However, the National Insurance Crime Bureau estimates $30 billion still in fraudulent payments being incurred annually representing 10% [3] of all claim payments. Carriers pursue these claims in the classic “pay and chase” model requiring them to access data from various systems to piece together the loss information and then “chase the money”. This begs the question as to how fraud can be identified prior to issuing the payment?

Financial Institutions and carriers currently do not have the ability to aggregate data between themselves when making claim payments. I.e., companies, if capable, are only able to make an ACH payment without transferring detailed claim data attached to it and have no way to determine if other carriers may be issuing a payment. Think about the possibility of the carrier having the ability to transfer data and money at the same time without actually disbursement of funds in the event of a red-flag event? There would be no “pay and chase” as the business rules would catch duplicate payments from multiple companies with the same claim data being transferred or stopping other fraudulent claims based on the parameters being utilized.

Stopping the funding of the payment makes more sense than trying to chase down a reimbursement 6 months from now!

CONCLUSIONS:

Carriers have the opportunity to build brand awareness and connect with their policyholders in a much deeper way by focusing on how they deliver payments to their policyholders and other insurance carriers. By utilizing new technology and combining it with the improvements in money movement navigation, the carrier also takes advantage of operational efficiencies resulting in reduced transaction costs with ultimate improvement to the bottom line.

THE FUTURE IS NOW FOR THOSE CARRIERS WITH VISION ….. WILL YOU BE ONE?

[1] http://fedpaymentsimprovement.org/wp-content/uploads/enduser_demand_summary.pdf
[2] http://www.europeanpaymentscouncil.eu/pdf/EPC_Article_390.pdf
[3] Source: The Insurance Fact Book, 2015, p.43; Insurance Information Institute, New York

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