Payments Evolution: A Wake up Call

By JR Gearhart

“I just want to pay my bill, lady”, the man said to the clerk, as she handed his bankcard back to him. “It’s hot, we live 42 miles from here, it’s due today, I made a special trip in to pay for it and I want to take care of it now. I’ll just write you a check.”

“I’m sorry, sir,” said the clerk, “I can’t take your check, I can only take cash payment, or your wife has to give us two personal checks that she signed herself. We made the loan to her and she has to be the one paying us back. One check made out to us, for our fees, and the other for the loan principal and interest due, made out to our lender.”

“She’s home sick in bed, and she told me this had to be paid today!” said the man.

“Yes sir, it’s due by 7 p.m., but I can’t accept your bankcard or your check. I’m sorry, sir, that’s our company payment policy,” continued the clerk. “It’s only 4:15, if you hurry, you can run home, get the checks from your wife and make it back in time. We’ll be here until 7.”

“Unbelievable,” I thought to myself as the red-faced, agitated and frustrated man turned and walked out the door, cursing.

I had been told by a financial services software engineer that the CFS industry operated under some archaic and antiquated methods, but I didn’t believe it. This poor guy (unless he cooled down and it dawned on him to go find an ATM) ended up driving 168 miles round trip, spent several hours in the process, felt his blood pressure go through the roof, and probably had some very choice words for his ailing wife who sent him on this charade in the first place — to simply pay a bill. I’m glad he wasn’t packing a pistol. The guy was peeved!

Make It Easy

Here, before my eyes, I witnessed first hand one of the most blatant violations of the most commonsense business tenets ever espoused: In business, you must make it easy for your customers to do business with you or they will surely go to your competitor, who does!

A card-carrying consumer can buy anything from a hamburger to a Lear Jet from millions of locations worldwide, in person, by phone, by fax or over the internet, but in the United States, where electronic payments started, he could not pay a $100 debt over the counter at this loan store?

Surely, this was some sort of fluke. Surely, they’ve provided an on-premise ATM, ATM scrip machine, or POS debit, so the customer could at least access his money. I was amazed at the lack of common sophistication in payment acceptance. I was just an observer. Their customer was also amazed and angry (and very adept at cursing). After paying this bill, which I am sure he did, I’d wager that this company never saw this couple again. Would you go back?

This happened in a north Texas town of 100,000, at a nationally known cash loan provider location. I later discovered that such restrictions in payment were the CFS industry norm, not some random aberration in business judgment by this particular store.

As a 19-year veteran program developer and merchant services provider in the electronic payments industry, I was dumbfounded. It proved to be one of the driving factors behind the four-year development of a suite of non-restrictive electronic payment services, ancillary products and an operational methodology conceptualized and designed by my company specifically for the CFS industry, to address these types of problems ( .

As we researched the industry, we discovered that there exists a widespread misunderstanding, confusion and general lack of knowledge concerning electronic payment processing. Hopefully, this article will provide industry participants with a rudimentary understanding of electronic payments, the acceptance, appeal and diversity they offer, and the positive psychological and fiscal impact they can have in the mind of consumers — and on the CFS industry merchant’s bottom line.

Persona Non Grata

The primary reason that the CFS industry in general is uninformed about electronic payments is that the industry has historically been classified as a restricted/hit list/off limits/hands-off business sector by the payment processing industry as a whole.

Banks, solutions providers, processing networks all consider the industry as extremely high risk and untouchable, and the vast majority will not touch a business from this sector. No one wants the exposure and risk.

Consequently, the marketing end of the payments processing industry has never targeted the CFS industry for product and services exposure and education — no one could or would write the business or issue merchant accounts for services. The result is that the CFS industry has not been exposed to the most commonly accepted forms of electronic purchase and payment in our world today, and is for the most part unable to offer these payment options to their customer base.

The great news for the CFS industry is that this is changing, and some providers are beginning to ease restrictions and offer selected services, as interest and demand continues to rise from inquiring CFS industry players. Restrictions definitely still exist, but in certain circumstances, CFS merchants can now offer various payment options that they couldn’t in times past.

Why is this beneficial? Your industry has historically utilized a cash payment format, most of you love it. Why change? In short, because the normal CFS payment format is an anomaly and isolationist in nature when compared to traditionally accepted business payment practices.

Your client base expects differing electronic payment options. There are 30 million merchants globally who accept electronic payments. That should clue you into the fact that they work. These merchants also love cash payments, but discovered that they make more money more frequently by accepting electronic payments, and their customers expect them to offer the option.

Seven out of 10 American consumers prefer to use electronic purchase and payments — credit/debit, ACH, e-check — for the goods and services they want, and approximately 78 cents out of every dollar spent is done so electronically.

Both average ticket and frequency of purchase increase with electronic payments. The debit card leads the pack as most Americans’ preferred payment vehicle. (How many times have your clients asked to pay their bill with their bankcard?)

For more than 25 years, the banking industry has been busy teaching, indoctrinating and socializing the American consumer into utilizing and spending his money, not in cash, but via the electronic formats. This has worked. For the most part it’s safe and extremely convenient, and we have all become psychologically predisposed to operate in these ways.

Electronic payment is the major means by which money is spent and processed globally, in retail sales, in phone and mail order, in catalog order and certainly over the Internet.

It is the future of money, and the conversion to and acceptance of electronic payments is the natural, common sense business evolution of the CFS industry, as it has proven to be in most every business industry.

Don’t Limit Options

Your customers are driven to you by need, and at times, desperation. The demand is insatiable, and will never go away. Every business and consumer will have the need for short-term money at one time or another.

You know that your industry is the primary provider of financial services to working class consumers, and you are doing wonders in trying to provide them with a positive experience when dealing with you. However, you deny, limit or take away their payment options when you restrict payments to “cash preferable — check only if we have to.”

Think back to our red-faced, frustrated and cursing friend, and put yourself into his shoes. He had to word hard at just paying his bill! That is a no-no as far as traditional business practice is concerned.

With all the risks and work associated with starting and operating a business, the merchant must also consider how money is spent. What are the consumer spending trends and habits? This is a crucial factor in setting up payment options, and cannot be stressed enough.

Remember that more than 30 million other merchants would have allowed the bankcard or check payment in a heartbeat, and it would have been instantaneous, guaranteed and unstoppable. They are enlightened enough to know that the bulk of money spent is done so electronically.

The customer expected the clerk to take it, or he would not have pulled his card out or reached for his check book when the clerk refused the card. It’s legal tender, accepted worldwide, coin of the realm.

How many Big Macs and Happy Meals would McDonald’s sell if it required its customers to pay for them with pennies? My guess would not be the “billions served” that they so proudly boast about, regardless the wailing of the five-year-olds in the back seat who Mom just informed that it was too much trouble to buy from MickeyD’s! The point being that what works best for the merchant may be a nightmare for the customer. Common sense.

Prince into Frog

Need or desperation may have driven the frustrated man’s wife to the CFS door, and she was granted the money requested, probably in a very friendly and congenial way. However, the second side of the equation, the attempt at payment, started the frustration, anxiety and anger.

They just wanted to pay their bill as they promised they would, but what should have been an all-around great experience with that lender was transformed into a transaction that is forever tainted. Payment should encompass simple common sense, and empathy, for the needs of your customers.

A 2003 Forrester Research survey reached this conclusion: 83 percent of consumers are most likely to change where they do business if they find either a more convenient or less expensive place. The customer, like us all, wants to do things his way, and he is the one who can choose with whom to do business.

The more conducive your operation is to meeting the customer’s needs, the more enjoyable, valuable and appreciated the experience with you will be in his mind.

Multiple avenues are available to you right now to begin offering electronic payment: credit card, debit card, guaranteed ACH, instantaneous money in and out, closed and open loop debit, gift and loyalty cards, in-person, remote and recurring payment. in-house creation of FDIC-insured bank accounts, issuing, selling and cash loading debit cards, bank originator bill payment, money transfer and prepaid services, operations capital and financial services, tax benefits, risk management, insurance and collections services. These are available to you through certain providers. Maybe now would be a good time to check into them.

J.R. “Rick” Gearhart is owner of First Capital Datasource, a Dallas-based diversified financial services consultant, program developer and merchant services provider in the electronic payments processing and financial services industry, ( He can be reached at (888) 733-1763 or
Posted in Summer 2009.