Eliminating Checks – How Payments Companies Can Make Your Business More Efficient During The COVID-19 Crisis
Among the myriad challenges facing all levels of government and business during the coronavirus crisis is how best to get money to those who need it in as fast and efficient a manner as possible. Employers, local and state governments, charities, and other businesses addressing this pressing need are finding that this challenge is made all the more difficult by an outdated, expensive, and inconvenient piece of technology. I’m speaking of course of the paper check.
Paper checks have long been one of the most inefficient ways to pay or be paid. Businesses making payments with paper checks have to contend with both the cost of the check payment, often ten times as high as the cost of other payment methods like direct deposit, and the increased likelihood that check will be lost or stolen, requiring the cancellation and reissuance of the check, which itself carries additional expense. Check payments are not much better for the recipient who, at a minimum, has to take extra steps, often including a trip to the bank, to access their funds.
Paper checks are even more inconvenient for the nearly 60 million Americans who do not have a traditional bank account and for whom other payment methods such as direct deposit are largely unavailable. For these Americans, receipt of a paper check also means a trip to a check casher and the payment of a hefty fee to receive the bulk of their funds in cash. In order to pay bills, that person then has to pay an additional fee to obtain money orders and then make physical trips to the various service providers to make payment in person. If any funds are left over, they must be carried by the recipient as cash and, if lost or stolen, leave that person completely vulnerable without any liability protection. All of these issues are execrated by a global pandemic where social distancing is key and the type of face-to-face and hand-to-hand transactions necessitated by paper checks are no longer just inconvenient, they are actually dangerous.
Luckily, the payments industry has developed some important alternatives to paper checks that can be used to get money into the hands of people who need it in a way that allows them to access their funds immediately and to pay bills, purchase goods, and do other shopping remotely.
Whether you are an employer or government agency looking for ways to pay your employees and beneficiaries, or an insurance company or charity seeking ways to get funds into the hands of the needy, here are a couple of paper check alternatives to consider for both during and after the current crisis:
Prepaid cards are not a new technology. They have been around for over a decade and, in that time, have developed into probably the most effective way to replace paper checks as a method of payment. This is particularly true for millions of prepaid cards that feature a payment network brand (such as Visa or Mastercard). These “branded” prepaid cards are bank issued debit cards that, among other things, can be provided by a corporate sponsor such as an employer or government agency, to an individual as a substitute for a payment that would otherwise be received via a paper check.
Prepaid cards are an improvement on check payments in a number of ways. One of the primary benefits these products have over traditional checks, is that many of them feature consumer protections that paper check payments simply do not. Specifically, many prepaid cards are subject to the same regulatory requirements as checking accounts. This means that, among other things, recipients of payments via a prepaid card can rest easy knowing that if the card is lost or stolen, their funds are protected by the same limited liability applicable to any debit card.
As an example of how prepaid cards can be used to replace paper checks, consider payroll cards, which are currently used by almost 6 million persons as a way to receive their wages. Payroll cards allow employers to deliver wages in a timely manner to all employees, including those who do not participate in direct deposit. This is true even when persons are away from the workplace during periods of severe weather, natural disasters, or pandemics when mail and in-person delivery can be impeded, delayed, or impossible. In addition, payroll cards provide recipients with electronic payment options that are not available to unbanked individuals, such as online bill payment, online shopping, the ability to reserve a hotel room and more.
In addition to payroll cards, similar prepaid card solutions have been implemented to deliver insurance proceeds, disaster relief payments, government benefits, rebates and just about any other form of disbursement.
If you are a business seeking an alternative way to make payments to individuals, there is very likely a prepaid card solution designed for your needs.
Direct to Card Disbursements
A relatively new solution that businesses may consider as an alternative for some check payments are the Visa and Mastercard “direct to card” payment models. These models, which are called Visa Direct and Mastercard Send, respectively, allow businesses to send a payment directly to a recipient’s bank account via his or her existing debit card number. The net effect is a “direct deposit” into the individual’s bank account that the debit card accesses. The “direct to card” solution, however, is easier to implement than direct deposit, because, among other things, it does not require you to obtain the recipients full account and routing number to make an ACH payment.
Obviously, the direct to card payment model is limited in that it wouldn’t help persons in need of money that don’t have a debit card already, but for businesses seeking to get payments out to customers or needy individuals fast, the direct to card model offers a convenient and efficient alternative to paper checks.