From cash to card acceptance: transforming routine transactions into extraordinary opportunities.

• Author: Schermann, Mark J.

Leading government entities are taking advantage of quickly evolving electronic payment trends to improve revenue collections while reducing costs, particularly through the latest solutions designed for PINless debit and electronic check conversion. Taxes, child support, commutation fees, even parking fees, tickets, and other motor vehicle transaction fees are just a few of the revenues where government agencies have successfully incorporated electronic acceptance.

This article is designed to help the government finance officer take the next step in transforming the treasury function to the electronic age. First, some background.

THE FOUNDATION OF THIS TRANSFORMATION

In 2003, electronic payments surpassed cash and checks as the preferred payment method at the point of sale as consumers and citizens not only accepted electronic payments, but embraced them.

Soon, citizens became accustomed to a wider choice of payment options. Yesterday's innovation has become today's norm. In 2005, the number of checks converted to Automated Clearing House (ACH) debits rose by 60 percent, and more than 2.15 billion consumer bill payments were processed through the ACH Network, according to the Web site Electronic payments.org, a site sponsored by Electronic Payment Networks (EPN) and the National Automated Clearing House Association (NACHA). Earlier this year, the results of survey sponsored by Checkfree Corporation and conducted by Harris Interactive and the Marketing Workshop found that, for the first time, consumers in Internet-connected households are paying more of their household bills online than by paper check. Online payments represented 39 percent of the total volume of bill payments, an increase of 4 percent over the previous year, while the volume of checks sent through the mail decreased by 4 percent. Speed, greater control over timing of payment, and savings of time, paper, and money are the top reasons given by consumers for preferring online payments.

This gradual but profound behavioral shift sent a clear message to governmental agencies. Citizens voted: checks would gradually go the way of the paper fax, which though still in use, has been mainly replaced by electronic messaging. Reflecting citizens' desire to continue to leverage technology to meet government-related financial obligations, more than 3,000 government entities, including the IRS, now offer some form of convenience fee-based payment options.

But could what was good for the citizen also benefit government organizations? Would this solution improve payment processing, and, even more critically, reconciliation for government entities? All organizations can reap the benefits of accepting automated payment solutions, including debit and PINless debit transactions and electronic check conversion. Electronic payments not only eliminate many costs associated with the generation of paper statements, but also reduce a variety of ancillary costs, including the high cost of fraudulent payments, collections, and exception item processing.

Cost reduction is not the only benefit. Automated payment processing solutions empower a government entity with a tool for control over cash flow forecasting and liquidity management. This also facilitates more accurate reconciliation by posting electronic information into legacy accounting managing software applications. Where managing collections was once seen as a waiting game, automated bill payment systems enable a government entity to have a say in settlement terms and speed.

The benefits for governments are readily apparent--you get your money more quickly. You can reconcile more quickly. You have more control. Your treasury processes become more transparent. This is a multiple windfall, but like any opportunity, it comes with complications and challenges. Having a processing partner that...