Contemporary Bank Check Alternatives
Business-to-Consumer: Direct Deposit
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- 6.1 How It Works
- 6.2 Underlying Technology
- 6.3 Advantages and Disadvantages
- 6.4 Commercial Success Thus Far/Future Prospects
- 6.5 Similar Products
- 7. Features Taxonomy
6. Business-to-Consumer: Direct DepositBusiness-to-Consumer payments consist of payments made by businesses, usually employers, to individuals. These might include payments for:
A system to facilitate these types of transfers, made electronically, has existed for nearly twenty-five years in the form of Direct Deposit. In the past, such payments were made using bank checks distributed in paper form. However, Direct Deposit makes the process of payment dispersal completely electronic, saving both time and money. Several different companies offer similar Direct Deposit services. National Payment’s (www.directdeposit.com) is profiled in this paper below. 6.1 How It Works“Direct Deposit is the electronic transfer of a payment from a company or organization into the checking or savings account of employees, retirees, taxpayers, vendors or shareholders. The payment can be divided among several different accounts and, in many cases, between different financial institutions.” [9] The process by which a company establishes Direct Deposit use and funds are transmitted is fairly straightforward. It consists of five steps [15]: 1) Employees Authorize Direct Deposit: Each individual employee must agree to the use of Direct Deposit by filling out a standard authorization form. 2) Direct Deposit installed in payroll software: The software is required to format payroll information according to Direct Deposit guidelines. 3) Payroll File transmitted to National Payment: The company prepares an ACH file and delivers it to National Payment by electronic upload. Generally, the company must deliver the file at least four days prior to the desired transaction time. 4) Direct Deposit initiates payroll transfer: National Payment processes the next pay period's payroll, prepares an ACH file and delivers it to the employee's financial institution one or two days prior to the effective date [9]. 5) Federal Reserve transfers funds: The employee also has the option of receiving a payment stub notifying him/her of the transaction as well as the pertinent information in regards to the transaction. A relatively new feature offered by National Payment is EZStub which is an electronic and improved version of the traditional paper stub. On payday, the employee receives notification of the payment and is able to access both current and historical information via the internet in regards to salary payments [15]. 6.2 Underlying TechnologyDirect Deposit relies exclusively on ACH technology to transfer funds. A detailed description of this technology is provided in section 2.1. The standard transfer time for ACH transactions is approximately four days. Thus, money transfers are complete four days after being initiated. 
Figure 7. Direct Deposit payment flow [9] 6.3 Advantages and DisadvantagesDirect Deposit is an improvement over standard banks in just about every way. Net, it is far less expensive than bank checks for all parties involved. NACHA estimates each Direct Deposit payment results in savings for the payer of as much as $0.60 [9]. “For a small company paying 2,500 employees each month by Direct Deposit, the average direct cost per ACH transaction is approximately $ 0.20. For a large company paying 30,000 employees each month by Direct Deposit, the average direct cost per ACH transaction is approximately $0.13.” [16] From the consumer standpoint, it has the capability of saving as much as $5.88 per payment [16]. And from a societal standpoint, “Figures from the U.S. Financial Management Service (FMS) indicate that the “all-in” costs (all relevant costs included) of producing a Federal paper check payment is $0.42, while the all-in cost of an ACH payment is $0.03, a savings of $0.39 per payment. (Source Byron Warren, Program Analyst, U.S. Department of Treasury, Austin Financial Center) [16]” Additionally, Direct Deposit payments are far more reliable. The chance of having a problem with a paper check payment is 20 times as high as the chance of having a problem with a Direct Deposit payment [9]. 6.4 Commercial Success Thus Far/Future ProspectsDirect Deposit is used by over 100 million people in the United States. More than 80% of large companies (100+ employees) subscribe to the service while 35 million social security recipients use it for deposits [11]. Fifty-five percent of adults use Direct Deposit [16]. Additionally, the use of Direct Deposit is growing rapidly. “Transactions increased from 3.407 billion to 6.868 billion items in the six-year period from 1995 to 2000, an increase of 102%. This represents an average growth of approximately 17% per year.” [16] Simplicity of process, extensive user base, low cost per transaction and unmistakable effectiveness ensure that Direct Deposit will remain a staple in the American financial process for years to come. No viable alternative is foreseeable on the horizon and, for the time being at least, none is necessary. 6.5 Similar ProductsAlthough there are few services quite like Direct Deposit, it is offered by a number of different companies. Additionally, its counterpart, known as Direct Payment, allows consumers to authorize companies to electronically collect payments from their bank accounts. 7. Features TaxonomyThe following table offers a quick summary of important data from sections 2 through 6. All of the information has previously been provided in those sections with references unless explicitly stated in the legend below the table.
Processing Time: Time from the initiation of a transaction to its completion. Funds Transfer Method: Underlying technology and processes employed. CPT – Society: Cost-per-transaction (CPT) that society must absorb. This applies exclusively to bank checks since they possess a multitude of different uses, users, and costs. The $1-$5 represents a cumulative estimate. Therefore, no other costs are attributed to bank checks; its additional cost categories are labeled not applicable (NA). CPT – Party 1: CPT for the sender. CPT – Party 2: CPT for the receiver. FC – Party 1: Fixed cost (FC) for the sender. FC – Party 2: FC for the receiver. Medium: The medium by which transactions occur. This is not to be confused with the medium by which processing takes place. Market Size: The overall size of the market. The C2B estimate is an aggregate combining recurring and one-time payments. The source for these estimates is [10]. Market Penetration: The percentage of the market controlled by electronic transfer technology. Market penetration for C2C is provided in [10]. Directory: profit -> htdocs -> thesis thesis -> Design and Implementation of Fisheye Routing Protocol for Mobile Ad Hoc Networks by profit -> Extra Titles profit -> P. O. Box 210108 Tucson, az 85721-0108 profit -> Three Trends Dealerships Must Not Ignore in 2016 Download 131.07 Kb. Share with your friends:
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