Is the Dollar Bill Over the Hill?
Assessing the New Electronic Payment Mechanisms
Roland Wise doesn't surf the 'Net--in fact, he doesn't even have a computer in his house in Buffalo, N.Y. But when he drives the Northeastern toll roads, he surfs right past the tollbooths. A little box on the dashboard called an E-ZPass saves Wise the embarrassment of tickets and flashing red lights.
The retired art professor is a proud computer-phobe, but he thinks the pass he's used for three years is "wonderful. I'd think that everybody would get one. I just marvel at it."
Wise is hardly in the target demographic for the explosion of electronic-payment systems, but his use of the E-ZPass mirrors a much larger trend in the U.S. Checks and cash alike are succumbing to a profusion of electronic payment mechanisms. Fact is, the surge in electronic payments has survived the dot-com fizzle.
Baffled by electronic payments? Boggled by the many ways your money can move--instantly--into the pocket of another? Bewildered at the prospect of controlling your finances in the face of so many new financial mechanisms? Hold on. We have some answers.
While many electronic payment systems are new, their roots (literally, this is where they get hold of your money) are in checking accounts and credit card accounts. The E-ZPass, for example, "eats" periodic prepayments from a credit card.
Let's take a look at some of the new noncash payment options:
In God we trust. All others avoid cash.
One of the largest categories of the new electronic payments is called e-checks. Originating in your checking account, they are handled through the same "automated clearinghouse" network that routes other electronic funds transfers, such as direct-deposit of payroll checks. E-checks may be used at the point of sale or over the Internet, such as to pay credit card balances.
Click-to-Pay, used with the AT&T Universal Card, is one of many brands of e-checks now available. It's possible to enroll in 10 minutes, using a standard Internet browser and dial-up connection. Then, each month, you log on with password and user name, and specify your payment amount. You save postage, the hassle of writing checks, and late-payment fees: Click-to-Pay promises payment in three business days. Although that's already faster than mail (also known as snail mail)--payment often is posted the same day. For snail mail, some credit-card firms suggest mailing payments 10 days before the due date.
Most credit unions offering their members Internet bill pay services do so by way of third party suppliers, or settlement agents. These agents, such as Check Free, essentially accept bill payment instructions from the member and act on those directions.
You'll be more confident using these processes if you're aware of the status of your accounts at all times. Customer support is available to help if you have questions about a transaction. Keep in mind, though, that even though this is an electronic process, consumers are subject to the same fees associated with paper checks, such as late fees and returned check fees.
Checks also can turn electronic through "electronic check conversion." When you present a paper check, the retailer electronically enters the amount, as well as your account number and financial institution. The payment is then debited from your account and your voided check is handed back to you.
Beyond the checkbook
Remember the new "electronic economy" that was to be ushered in with some get-rich-quick Internet schemes? PayPal has delivered, as the paymaster of frictionless capitalism, the king of small payments, the main line for moving money to merchants and other people who do not accept credit cards.
If you're wondering "who's that?" you haven't bid on eBay lately. The Internet auction firm found PayPal so useful that it bought the business. You can use a PayPal account for more than buying on Internet auctions, however. You can pay anyone who has an e-mail address, such as small businesses that don't want to go through the expense and hassle of accepting credit cards. At any rate, PayPal has more than 20 million accounts.
A radically different, but equally successful, approach to electronic payments is visible at Exxon-Mobil gas pumps. Wave a SpeedPass, a little key-ring size electronic coding gadget, at the pump, and faster than you can shout, "Hark! Money moving through ether!" funds are sucked out of your credit card account. The five million SpeedPasses now in use could gain new talents. Soon, you may be able to buy convenience-store items and even burgers at McDonald's with the pass.
Imagine the possibilities: Wave your magic wand, and fill both "gas tanks" at once!
Weighing the systems
As with any payment system, some questions may arise:
• "Immediate payment" translates into "sayonara float." With instant payments, you lose the dividends you now earn after you write a check, but before the amount is deducted from your bank account. Many consumers believe this is a small price to pay for convenience.
• Although some e-payment systems claim you can stop payment the way you would on a check, payments usually are so fast that you may be later than the 13th car of an 11-car train.
• Electronic payment systems leave oodles of data about where you go and what you buy. Privacy advocates are raising these concerns to all who listen. Credit unions offer these tools for convenience, while keeping aware of security and members' privacy.
• If your AT&T phone bill gets transferred to your credit card, which then gets paid electronically from your checking account, you could be forgiven for thinking you've paid the same bill three times!
For financial institutions and retailers alike, electronic payment systems are supposed to bring convenience, security, and accuracy--all with a welcome reduction in paperwork. Consumers must be getting some advantages, to judge from the way they're adopting these systems.
The Federal Trade Commission (FTC) has consumer information about electronic commerce.
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