by Bob Chevlin
June 2017 – Payers have been increasingly embracing the use of virtual card payments (i.e., electronic payments) as a way of reducing the cost of issuing checks or ACH payments. In addition, Payers have benefited from receiving “cash back” from their virtual card issuing vendors in the form of dividends, rewards or rebates effectively creating a new revenue stream for them. (Imagine if you got paid a percentage of the amount you owed someone every time you paid them, and the larger amount you paid, the more money you made….and the less money the person you’re paying would receive.)
For small dollar payouts, for example less than $300, these programs have been widely accepted by providers as a way of getting paid faster and effectively improving their cash flow. The cost of receiving these payments comes in the form of interchange fees, which are higher than retail interchange, and can range between 2.5-4% of the dollar value of the transaction. These fees are largely paid by providers as merchant processing fees.
While providers are accustomed to costs associated with accepting credit card payments in their offices, or billing patient co-payments through the mail, these costs, though not insignificant, are often considered the normal cost of doing business. However, the cost of accepting card-based electronic payments from payers can be significantly higher. Whereas a single co-payment of $100 may cost the provider less than $2, a single $250 electronic payment covering multiple claims from a payer could cost a provider up to $10 in merchant processing fees. As a result, providers are increasingly opting out of these virtual card payments and demanding checks or ACH payments from payers for their larger dollar payouts.
The good news is a new type of electronic payment that appeals to both providers and payers for these large dollar payouts. “Real-Time payments” ride the debit card networks to allow payers to instantly fund a provider’s bank account for a flat fee, regardless of the dollar value of the transaction. Payers can now provide another immediate electronic payout solution, which eliminates the cost of checks and ACH. By properly managing the provider experience, payers can offer providers both lower and higher dollar electronic payment solutions, effectively capping the cost of receiving an instant payout.
For example, if a payer determines that its average “fall off rate” for the acceptance of virtual card payouts is around $250, it can offer virtual card payouts at a cost of 4% for all payments under $250 and then offer real-time payments for a flat fee of less than $10 on all payout amounts over $250, effectively capping the provider cost.
Offering a real-time payment option should dramatically increase the combined acceptance rate of electronic payments and reduce the number of opt-out requests for checks and ACH, a win-win for both payers and providers.
About the Author
Bob is co-founder of Push Payments, a real-time payment processor located in Fort Lauderdale, Florida, and a recognized leader in the payments industry, with over 25 years of financial services experience. He is best known for his subject matter expertise in the development of next-generation card processing and payments platforms, advanced service delivery models, and the creation and deployment of new alternative payment products. Bob has held leadership positions at Wildcard Systems, Royal Bank of Scotland, ABN AMRO, JPMorgan, and TxVia.Bob received a BA from Albany State University, and an MPA in Finance from the Wagner School at New York University.