by Mike Tallitsch, WAUSAU Financial Systems
Businesses spend a lot of time considering what services will attract young adults and keep them coming back for more.
By 2025, Gen Y will be responsible for $8.3 trillion, or 46 percent, of total personal income in the United States.
Factor in Gen Y's penchant for trying innovative services, and you can see why they are such an attractive consumer group.
How to effectively balance the needs of young consumers with the needs of consumers from older generations with more established and generally more lucrative relationships with businesses is posing a delicate problem across industries.
An example is the change in utility payments processing. The payments landscape is changing fast, and the payment preferences of Gen Y and millennial consumers are playing a big role in that transformation.
During the past decade, the payments industry rapidly migrated from paper checks to electronic transactions.
In 2009, more than three-quarters of all U.S. noncash payments were made electronically-a 9.3 percent annual increase since 2006, according to the Federal Reserve's 2010 study of noncash payments.
Even more telling, between 2006 and 2009 check payments continued to decline and were eclipsed by debit cards as the most used noncash payment instrument in the United States.
Forty-three percent of Gen Y consumers prefer to use debit cards as their primary payment method for any type of purchase or bill payment vs. 34 percent for all consumers, according to Javelin Strategy & Research.
Checks likely won't disappear soon, but shifting demographics suggest that electronic payments-both card-based and Automated Clearing House (ACH) transactions-will continue to grow.
The Electronic Payments Challenge
On the surface, the growth of electronic payments should be welcome news for utilities weary from years of processing paper checks and remittances.
But dig deeper and you quickly find that the rise of electronic payments combined with the host of payment channels that businesses must support has brought about more siloed payment systems at most businesses.
These systems add significant overhead when businesses are focused on reducing costs.
Businesses want to steer customers away from inefficient payment methods or channels, as ChargeSmart's Tim Brinkman suggests in his article in the November/December 2011 issue of Electric Light & Power.
But businesses don't determine customer preferences; customers do. And customers have shown a proclivity for choosing the cheapest, most convenient payment channel available.
Customers don't react well when businesses try to dictate behavior.
When it comes to payments, customers expect to use the method and channel with which they are most comfortable, and they typically don't want to pay to use their preferred payment method when other methods are offered at no charge.
Further, consumers want some say in payment timing.
For these reasons, utilities shouldn't count on payments' moving to a single method or channel any time soon.
Instead, utilities must find more effective ways to manage their paper-based and electronic payment methods and channels.
This starts with an integrated receivables hub.
An integrated receivables hub consolidates paper-based and electronic payment streams onto a single platform.
This provides utilities with the ability to collapse siloed payment systems, which reduces information technology overhead, plugs information gaps and allows utilities to apply consistent business rules and controls across payment channels.
Consolidating payment streams also provides treasury with better visibility into the company's receivables, facilitating more informed investment decisions.
And having all of a customer's payment information stored in a common archive allows call center representatives to respond to inquiries more quickly without accessing multiple systems.
Unlike investments in solutions that address only one payment type, an integrated receivables hub protects utilities against unpredicted changes in customer payment preferences.
The Bottom Line
Offering a variety of convenient payment options is critical to meeting and exceeding customers' needs.
That's why utilities must not cater to the payment preferences of one customer group at the expense of another.
Leveraging an integrated receivables hub enables utilities to cost-effectively manage all of their paper-based and electronic payment streams.
In turn, they can reduce operations and information technology costs, improve receivables reporting and offer customers the payment options they desire.
Mike Tallitsch has been in the financial services sector more than 15 years and with WAUSAU Financial Systems (WFS) more than 13 years specializing in receivables processing solutions. As vice president of corporate solutions, he manages all WFS solution content for delivery to market verticals such as utilities, insurance and government. Reach him at email@example.com.