Electronic Payments

By Janet Byrne, Pinnacol Assurance

Is it time for your organization to join the 21^st century and replace check payments with more economical and efficient solutions? We don’t have to look any further than to our own personal buying habits to realize that paying by check is cumbersome and antiquated. With more electronic payment choices available than ever before, paying vendor, provider, injured worker and employee obligations by check is quickly going the way of the dinosaur. 

Sharing best practices and slaying ice aged ways of doing business are primary focal points of the AASCIF Finance and Investment and Audit and Statistics Committees’ annual workshops, which explains why Emerging Electronic Payment Options was one of the premier topics discussed at this year’s event.  For this presentation, Mary Beard, the Chair of the Finance and Investment Committee, enlisted Stephen Mason, CPA, Kentucky Employers’ Mutual Insurance’s Data Manager, to share his knowledge of the advantages and disadvantages of various electronic payment systems. According to Mr. Mason, “Understanding each method’s pros and cons enables decision-makers to identify the best solution for each type of payment and payee. This is the first step toward updating a company’s disbursement processes.” 

Today’s EFT alternatives can be divided into two buckets, a couple that have stood the test of time, and a few that are coming of age. 

Tried and True

Wire transfers and Automated Clearinghouse Transactions (ACH) have been around for decades and have gained wide acceptance as secure and efficient systems.

Automated Clearing House

ACH is one of the most affordable and popular electronic payment approaches.  In 2008 alone, over 18 billion transactions were processed through the ACH network. The use of ACH is limited to domestic transfers, and is only available to payees with bank accounts. ACH is well-suited for paying accounts payable vendors, medical providers, and payroll and expense reimbursements to employees (direct deposit). While estimates vary significantly, the cost savings achieved by substituting a paper check payment with an ACH transfer is $2 - $8 per transaction.   

Wire Transfer

Wire transfer is the most expedient way to transfer funds to a payee and can be used for both domestic and international transactions. For domestic transfers, the payee receives funds within a day of the payor initiating the transaction. Wire transfers are more expensive than ACH and for this reason are used less frequently. The funds can be transferred into the payee’s account or received in cash through a cash office, such as Western Union®. Wire transfers are well-suited for large, time-sensitive or international payments. Settlements to injured workers residing outside of the United States and payment of large, periodic employee benefit liabilities are situations where wire transfer may be appropriate.

Leading Edge

Prepaid Debit Cards

Over the past several years, the use by private and public entities of prepaid debit cards as a mechanism for delivering periodic payments to beneficiaries has grown considerably. For workers compensation companies, making indemnity payments to injured workers is one of the organization’s most check-intensive processes.  Many injured workers do not have a bank account, which often precludes the use of ACH for making indemnity payments. An option that several AASCIF organizations are considering is issuing each injured worker a prepaid debit card.

Prepaid debit cards allow the company to issue a single bank card to an injured worker and replenish the balance on the card as each benefit payment is due.  Each card recipient receives a personal identification number, similar to an ATM card. The card can be used to make purchases or the balance on the card can be redeemed for cash. The transaction fees for debit cards are higher than for ACH payments but less than the cost of repeatedly issuing checks. 

SMART Card technology

SMART cards take the card payment concept one step further. Imagine issuing a single card to your injured workers that enables him or her to access medical and other necessary services, prescription drugs, and indemnity benefits. Smart cards contain a microprocessor that holds identification and benefit information. They are currently used worldwide in a number of industries to provide access to healthcare services and benefit payments where personal identity, privacy, security, convenience, and mobility are key factors. Use of smart cards is expected to grow over the next decade and should be included in any evaluation of electronic payment options for indemnity payments to injured worker or provider reimbursements. 

Now that your interest has been piqued, consider the opportunity that electronic payments may present for your organization and watch for more AASCIF articles and future workshop sessions on implementing electronic payment solutions.  Before you know it, your organization will find itself leaping into the 21^st Century.