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Profiting from Preauthorized ACH Debits

Bai_transpay_logoold_1We spent the past few days at BAI’s TransPay Conference <>. It featured much talk about the displacement of paper checks with electronic transactions. This is not a new story, but the implications for banks make good fodder for presentations. We'll cover a few of the key points in this and subsequent articles.

Retention Benefits of ACH

Echeck_1Common sense tells you that if bill pay is good for customer retention, then preauthorized debits would be even better. They are usually more difficult to setup and much harder to unravel. However, we'd never seen numbers to back this up until yesterday. In a presentation by Fiserv’s Mark Sievewright, he cited internal figures from a national retail bank first presented by Dove Consulting <> that quantified attrition rate by type of ACH payment used:

                               Annual           Annual Net
    ACH Usage      Attrition Rate  Income (pre-tax)
No ACH activity            37%                $190
ACH deposit only          7.9%               $360
ACH deposit and pay    3.4%               $470

It costs just a few pennies per month to process preauthorized direct debits, whereas pay-anyone bill payment can cost as much as $5/month. If you have 25,000 bill-pay customers, you could add $1 million to your bottom line by reintroducing a $3.95/mo fee for the privilege. However, it won't be easy putting the free-bill-pay genie back in the bottle. You'll have to go slow, introducing fees to certain segments, such as lower-balance checking customers, or checking customers who have not opted in to electronic statements.

For more on alternatives to free bill pay, see Online Banking Report #109, "Pricing."