Magazine article American Banker

Two Camps' Shared Goal: Break Paper Check Habit

Magazine article American Banker

Two Camps' Shared Goal: Break Paper Check Habit

Article excerpt

While banks have been shifting their marketing focus among retail customers from direct debit to online bill pay, some large billing companies have been pushing in the opposite direction, and they say their direct debit programs are starting to take off.

In both cases the aim is to get consumers to use electronic payment options rather than paper checks, which benefits both billers and bankers. The real difference lies in whether it is the biller or the bank that exerts primary control over the billing relationship: With online banking the bank plays a more visible role as intermediary. In the long run bankers may find they want to discourage direct debits, but for now the emphasis is on weaning consumers off paper.

With direct debit, consumers give a billing company advance authorization to draw its monthly fee from their bank accounts. People tend to use this method for predictable bills such as utility payments and mortgages rather than for ones that fluctuate monthly, such as credit cards.

One company that has experienced a surge in pre-authorized debits is Verizon Communications Inc., where the option represented 36% of the electronic payments it received in the first half of this year, against 16% in all of 2001. "We weren't trying to promote it before the start of 2002," said Angeline DePauw, a director of finance operations at Verizon.

Verizon customers can enroll through the company's Web site, by phone, or by signing the back of the payment coupon when they mail in a check. "I think it's taken off because we made it easier for customers to enroll," Ms. DePauw said. She expects the format to generate as much as 40% of the electronic payments the company is receiving by yearend and said that figure could reach 50% by the first quarter of 2004.

"This is really spiking with individual billers," said Avivah Litan, a vice president and research director at the market research firm Gartner Inc. …

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