Case Study: Would you like Paper or Plastic?

Sponsored by CSCU

Two sets of numbers were recently released by NACHA and the Fed, respectively: ACH transactions are up over 5 percent, and checks are declining by 2 percent. Neither of these are eye-popping numbers, but when taken together, they raise the question: What does this mean for credit unions?

First, a deeper dive into the growth of ACH: NACHA is a not-for-profit responsible for managing, governing and administering the ACH network. The most recent numbers from NACHA’s president, Janet Estep, claimed that ACH transaction volume rose 5.3 percent to 25.5 billion, representing a transfer of $43.7 trillion. While 5.4 percent growth sounds slightly anemic, a denominator in the billions takes a big numerator to move a few percentage points. And to complete the math, that’s an average transaction of $1,748. One of the growth factors cited by Estep was the introduction in September of same-day payments, which allowed ACH payments to be processed within one business day rather than the next day or the day after. Additionally, Estep provided that recently they have seen higher growth in internet-enabled ACH (such as paying with Venmo or paying your cell phone bill from your share draft account) than in pre-arranged payments (such as payroll direct deposit and company expense reimbursements).

Around the same time, the Fed’s annual report showed a decline in check usage of about 2 percent over the last year, about a 50 percent decline since 2000 when 42.5 billion checks were written. More interesting is that 95 percent of the decline is in checks under $500. Many businesses still rely on checks to pay vendors, but the under-$500 decline implies that consumer check usage is migrating to other forms: using a debit card at the supermarket, paying for utilities using bill pay, or, if you’re a millennial, “settling up” for a pizza party using the Venmo app. But something gets lost when moving from check to ACH. In the past, when a tenant paid the landlord by check, there was branding on the upper left of the check that was seen by both parties each month, almost like free advertising. That goes away with ACH.

So, back to the question: is this migration good or bad for the credit union? On the surface, this seems like a no-brainer—ACH is way cheaper to process than checks. Considering that many credit unions supply their members with free checks, including shipping from the printer, it makes the business case even stronger to encourage members to move to ACH forms of payment. But scratch a little deeper and there’s more to it.

It may not be in the credit union’s best interest for members to move from check to ACH-based payments if, for example, those payments are moving to Venmo. Users of the popular peer-to-peer app typically store their money in their Venmo account (a digital wallet) and, except when funding a transaction that’s not covered by stored funds, the credit union is no longer involved. Even if the Venmo payment is funded by a CU debit card, the brand or card art is not displayed. (It should be noted that many banks and some credit unions are signing up with Zelle, a competitor to Venmo in which funds are moved directly from and to the user's checking or savings account.)

Getting a member to move from paying their bills by check to paying their bills by using the CU-branded online bill pay is a great thing. It saves the member money (no stamps or envelopes needed), and it keeps the member on the CU website, viewing offers, interacting and seeing the brand. It does cost the credit union to offer online (and mobile) bill pay, but from a marketing point of view, it’s a valuable and very sticky service. Yet even in the world of online bill pay, there’s a wrinkle. Many consumers are paying bills directly with the biller, instead of through the credit union’s bill pay site. They’re responding to the reminder email from your cell phone service provider by clicking on the “Pay Now” button, or going to the cable company’s website to pay using a share draft account and CU routing number—resulting in a “pull” or debit ACH transaction, but no eyeballs on the CU website. So, moving from check to online bill pay is good, so long as it’s the CU-branded bill pay and not the biller’s website.

Whether moving from check to ACH payment forms is a good thing or not is a moot point—it’s inevitable. Some safe assumptions are that check usage will continue to decline, P2P usage will continue to grow and the ability to pay bills online in some form or another will continue to be expected by members. Credit unions need to continue to add value for their members through education, and even better, rewards programs that provide incentives for making CU-branded bill pay transactions—like paying for groceries using debit or credit instead of writing a check or paying cash—and creating compelling digital offerings such as including P2P in the mobile banking app.

Lou Grilli is director of payments strategy at CSCU.

At CSCU, a leading provider of processing services to credit unions, we know about cards and payments. We deliver solutions to help simplify the increasingly complex world of payments. Through portfolio consulting, industry insights and thought leadership resources, our goal is to help credit unions not just survive, but thrive.