Small Business Adoption of Payroll Direct Deposit
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Small Business Adoption of Payroll Direct Deposit Small Business Adoption of Payroll Direct Deposit Presentation Transcript

  • Driving Revenue & Profits in Electronic Payments… Small Business Adoption of Payroll Direct Deposit Ian Macoy, NACHA Paul McAdam, FIS April 4, 2011PROPRIETARY / CONFIDENTIAL: This document is NACHA’s proprietaryconfidential information and may not be circulated without prior approval.© 2011 NACHA. All rights reserved.
  • BackgroundAs support for NACHA’s promotion of Direct Deposit use among smallbusinesses, NACHA and FIS collaborated on this study to identify: Key attributes of small businesses that adopt Direct Deposit Barriers to adoption of Direct Deposit How knowledge about adopters’ characteristics can be leveraged in targeting non-adopters to improve Direct Deposit penetration Understand how Direct Deposit fits within the context of other financial products/services used by small businesses Slide 2 © 2011 NACHA and FIS. All rights reserved.
  • Research Methodology 51-question, online survey completed by 2,249 small businesses in November 2010 Respondents’ positions within companies: – Owners, CEOs or presidents – CFOs, controllers or treasurers – Office managers, accountants, bookkeepers or payroll managers Company criteria for qualifying for this study: – More than one employee – Use a business checking account most often for the company business – Less than $20 million in 2009 revenue The survey was fielded by FIS to members of a small business panel maintained by Research Now Slide 3 © 2011 NACHA and FIS. All rights reserved.
  • Respondents by annual revenue and number of employees Company Revenue (2009) Under $500,000 24%* $500,000 to $999,999 19%$1 million to $1.99 million 19%$2 million to $4.99 million 20%$5 million to $9.99 million 12%$10 million to $20 million 7% Number of Employees 2 to 5 employees 21% 6 to 10 employees 16% 11 to 20 employees 23% 21 to 50 employees 23% 51 to 100 employees 10% 101 or more employees 6% * Read as: 24% of the companies surveyed have annual revenues less than $500,000 Please select the box below that corresponds to your firm’s total revenue in 2009. n = 2,247 How many individuals (in full-time equivalents) does your company employ? n = 2,246 Slide 4 © 2011 NACHA and FIS. All rights reserved.
  • Key small business lines of trade were well represented Small Businesses Lines of Trade Professional, Scientific or Technical Services 13% * Retail Trade 13% Construction 10% Healthcare or Social Assistance 8% Accommodation or Food Services 7% Financial or Insurance Services 7% Wholesale Trade 6% Over 100 completed Real Estate Sales, Rental or Leasing 5% surveys within these lines of trade Non-Profit, Charity, Civic, Social or Religious Organization 5% Manufacturing 4% Transportation or Warehousing 4% Arts, Entertainment or Recreation 3% Information (e.g., publishing, broadcasting, data processing,… 3% Administrative & Support Services 3% Repair and Maintenance Services 2% Educational Services 2% Personal Care Services 2% Agriculture, Forestry, Fishing, Mining 1% Other 2%* Read as: 13% of respondents work in the Professional, Scientific, or Technical Services industryWhat is your company’s primary business? n = 2,248 Slide 5 © 2011 NACHA and FIS. All rights reserved.
  • Summary of findings• Awareness of Direct Deposit is high, although FI recommendations are not typically part of the path to adoption.• Time savings, cost effectiveness and employee demand are primary motivators.• Only 30% of small business users of the service obtain 100% employee participation. Within companies that offer Direct Deposit, on average it is used by 83% of employees.• 100% participation cannot be achieved in some small businesses because a significant percentage of their employees do not have bank accounts.• Obstacles to Direct Deposit penetration include: 1) too few employees to justify it; 2) employee preference for checks; and 3) cost.• Additionally, one-half of non-users have not been approached by an FI, accounting firm or payroll processor about Direct Deposit.• Opportunity exists to further penetrate some part of the small business market by FIs but the message will need to allay their concerns about the expense associated with the service, and the perception that the firm has too few employees to justify it. Slide 6 © 2011 NACHA and FIS. All rights reserved.
  • Nearly half of the small businesses surveyed use payroll Direct Deposit, another 20% are potential adopters Awareness Usage Consideration 94% of small 10%businesses are 52% 48% aware it is 20% 18%possible to offer Use Don’t Use payroll Direct Deposit Would consider in the future Would not consider in the future Unsure Slide 7 © 2011 NACHA and FIS. All rights reserved.
  • We estimate that 34% of U.S. small businesses with 2 – 100 employees use Direct Deposit 17% of employees do not use Direct Deposit. 4.0 million employees in total Use of Direct Deposit among Businesses with 2 – 100 83% of employees use Direct Deposit. employees 18.8 million employees in total Direct Deposit Usage Among All Employees of Small Businesses 34% Use Direct 46% 10% 44% 66% Don’t Deposit Use Direct Deposit Use Work at a firm that offers Direct Deposit, but dont use it Direct Work at a firm that does not offer Direct Deposit Deposit # Employees at # Firms these Firms 2 to 5 employees 2,014,230 4,028,461 • 4.7 million of these firms in the U.S. 6 to 10 employees 615,084 4,052,024 11 to 20 employees 283,247 3,801,464 • They employ 41 million people 21 to 50 employees 139,746 4,198,355 51 to 100 employees 31,625 2,162,024 Total 3,083,932 18,242,329Source: Statistics of U.S. Business from U.S. Census Bureau, FIS analysis Slide 8 © 2011 NACHA and FIS. All rights reserved.
  • Most Direct Deposit users encourage their employees to adopt it and offer the option to split their deposits Direct Deposit Usage Company encourages employees to use 91% * payroll Direct Deposit Company currently offers its employees the ability to split their payroll Direct 71% Deposit into multiple financial accounts* Read as: 91% of Direct Deposit users encourage employees to use payroll Direct Deposit. n = 1,041 Slide 9 © 2011 NACHA and FIS. All rights reserved.
  • As company revenue increases, the likelihood of Direct Deposit usage increases 2009 Revenue 18% Non-Users 21% 35% 45% 59% 79% 79% 82% Users 65% 55% 41% 21%Under $500,000 $500,000 to $1 million to $2 million to $5 million to $10 million to $999,999 $1.99 million $4.99 million $9.99 million $20 million* Read as: 21% of those who have less than $500k in 2009 revenue are usersPlease select the box below that corresponds to your firm’s total revenue in 2009. n = 2,021 Slide 10 © 2011 NACHA and FIS. All rights reserved.
  • Similarly, as the number of employees increases, so does the likelihood of Direct Deposit usage Number of Employees 21% Non-Users 25% 35% 45% 59% 82% 75% 79% Users 65% 55% 41% 18% * 2 to 5 6 to 10 11 to 20 21 to 50 51 to 100 101 or more employees employees employees employees employees employees* Read as: 18% of those who have 2 to 5 employees are usersHow many individuals (in full-time equivalents) does your company employ? n = 2,021 Slide 11 © 2011 NACHA and FIS. All rights reserved.
  • Higher percentages of Direct Deposit users tend to be services industries or manufacturing related Small Business Lines of Trade Financial or Insurance Services 70%* 30%Information (e.g., publishing, data processing, libraries) 67% 33% Educational Services 65% 35% Non-Profit, Charity, Civic, Social or Religious 63% 37% Manufacturing 63% 37% Professional, Scientific or Technical Services 62% 38% Healthcare or Social Assistance 58% 42% Administrative & Support Services 54% 46% Transportation or Warehousing 52% 48% Agriculture, Forestry, Fishing, Mining 45% 55% Real Estate Sales, Rental or Leasing 45% 55% Arts, Entertainment or Recreation 44% 56% Wholesale Trade 43% 57% Construction 40% 60% Retail Trade 37% 63% Personal Care Services 34% 66% Accommodation or Food Services 33% 67% Repair and Maintenance Services 28% 72% Users Non-Users * Read as: 70% of financial services or insurance services small businesses are users What is your company’s primary business? n = 2,021 Average Slide 12 © 2011 NACHA and FIS. All rights reserved.
  • The vast majority of companies that outsource payroll to a payroll processor offer Direct Deposit Who Manages Payroll 17% Non-Users 46% 44% 59% 83% Users 54% 56% 41% * Myself or our internal Divided between myself Outsourced to our Outsourced to a third-accounting/payroll staff or internal staff and our accounting firm party payroll processing accounting firm firm * Read as: 41% of those who manage their payroll internally are users Who is primarily responsible for managing your company’s employee payroll? n = 2,021 Slide 13 © 2011 NACHA and FIS. All rights reserved.
  • Time savings, cost effectiveness and employee demand are the key adoption motivators Primary Factors Leading to Adoption of Direct Deposit (among Direct Deposit Users) Saves time 57% * More cost effective 48% Employees requested it 44% Reduces number of errors 24% Better for the environment 24%Reduces need to monitor payroll and tax law changes 22% Bank or credit union recommended it 15% Received incentive from payroll provider 11% Other 5% * Read as: 57% of Direct Deposit users cite ―saves time‖ as a primary factor that led their company to offer payroll Direct Deposit What are the primary factors that led your company to offer payroll Direct Deposit? n = 1,041 Slide 14 © 2011 NACHA and FIS. All rights reserved.
  • Less than one-third of companies have 100% employee participation Percent of Employees Using Direct Deposit (Among Direct Deposit Users) 100% 30%* 90% to 99% 25% 75% to 90% 24% 50% to 74% 11% 25% to 49% 7% • 79% of companies reported that more than 3/4 of employees use it 1% to 24% 3% • 83% of employees use it on average* Read as: 30% of small businesses with Direct Deposit have 100% of their employees participatingApproximately what percentage of the company’s employees currently receive payroll Direct Deposit? n = 1,041 Slide 15 © 2011 NACHA and FIS. All rights reserved.
  • Preference for receiving checks is a key reason cited for employees not using Direct Deposit Why Some Employees Do Not Use Direct Deposit (among Direct Deposit Users) Prefer receiving checks 51% * Don’t have bank accounts 30% Privacy issues 18% Distrust electronic banking 18% Distrust banks 7% • 97% of them are paid with checks • Only 3% with payroll cards Other 4% Dont know 13%* Read as: 51% of Direct Deposit users cite ―prefer receiving checks‖ as a primary reason why some of their employees do no use Direct DepositWhat is the primary reason that not all employees use payroll Direct Deposit? n = 733 Slide 16 © 2011 NACHA and FIS. All rights reserved.
  • “Too few employees to justify it” is the leading reason small businesses don’t offer Direct Deposit Reasons Why Company Does Not Offer Direct Deposit We have too few employees to justify it 46% * Our employees prefer receiving checks and/or cash 28% No one has ever approached the company about using Direct 26% Deposit Direct Deposit is too expensive 21% Many of our employees are temporary, seasonal or part time 19% Many of our employees do not have a checking account 17% Most of the companys transactions are in cash or check 17% Want to take advantage of “check float” obtained by paying 14% employees using paper checks Setup process is too time consuming 10% Setup process is too difficult 9%We’ve tried using Direct Deposit before, but were disappointed in 2% its performance Other 7% * Read as: 46% of non-users cite ―we have too few employees to justify it‖ as a reason for not using Direct Deposit For what reasons does the company not offer payroll Direct Deposit to its employees? n = 980 Slide 17 © 2011 NACHA and FIS. All rights reserved.
  • “Too few employees” has more 1st ranks but “too expensive” has highest ratio of 1st ranks to total mentions Ranking of Top Obstacles to Direct Deposit Adoption 24% * We have too few employees to justify it 52% Ranked First 14%Our employees prefer receiving checks and/or cash First/Total 50% 14% Direct Deposit is too expensive 64% 11% No one has approached the company about using Direct Deposit 42% * Read as: 24% of non-users rank ―we have too few employees to justify it‖ as the most important reason for not using Direct Deposit Please rank the order of importance of the reasons why your company does not offer Direct Deposit to its employees (rank the top 3). n = 980 Slide 18 © 2011 NACHA and FIS. All rights reserved.
  • Users hold higher opinions of the benefits of Direct Deposit than non-users Strongly Agree/Agree (top two box) 85% * (Would) save(s) our employees time 55% 78% (Would be) is a valued employee benefit 45%(Would be) is easier than paying employees using paper 76% checks 41% 70% (Would be) is better for the environment 51% (Would) save(s) my company time compared to paying 69% employees using paper checks 39% (Would be) is less expensive than paying employees 57% using paper checks 31% Users (Would) reduce(s) errors relative to paying employees 49% using paper checks 27% Non-users (Would) cause(s) my company to lose valuable “check 30% float” compared to issuing paper checks for employee 29% payroll * Read as: 85% of users agree that Direct Deposit saves their employees time Please indicate how strongly you agree or disagree with each statement below about using Direct Deposit for employee payroll . n = 2,021 Note: Direct Deposit users were asked a different question (how do) than non-users (i.e., how would) Slide 19 © 2011 NACHA and FIS. All rights reserved.
  • Messaging around employee benefits, environment and easier/saves time will resonate with prospects Strongly Agree/Agree (Among Companies not Using Direct Deposit) 77% * Would save our employees time 29% 68% Would be better for the environment 32% 68% Would be a valued employee benefit 19% Would be easier than paying employees using paper 60% checks 20% Would save my company time compared to paying 59% employees using paper checks 18% Would be less expensive than paying employees using 43% paper checks 20% Would reduce errors relative to paying employees using 38% Prospects paper checks 18% Non ProspectsWould cause my company to lose valuable “check float” 35%compared to issuing paper checks for employee payroll 23%* Read as: 77% of small businesses that would consider offering payroll Direct Deposit in the future strongly agree/agree that Direct Deposit saves their employees timePlease indicate how strongly you agree or disagree with each statement below about using Direct Deposit for employee payroll . n = 980Note: Direct Deposit users were asked a different question (how do) than non-users (i.e., how would) Slide 20 © 2011 NACHA and FIS. All rights reserved.
  • Profile of payroll Direct Deposit adopters vs. non adopters Adopters Non AdoptersAnnual Revenue  > $2 million  < $750,000# of Employees  > 20  <5  Financial services  Repair & Maintenance Services  Information services  Accommodation & Food Services  EducationIndustries  Personal Care Services  Professional services  Retail Trade  Manufacturing  Construction  Non-Profit or Religious  Saves employees time  A valued employee benefit  Easier than paying with checks  Saves employees timeAttitudes  Better for environment  Better for environment  Saves company time  Less expensive than checksEmployee Base  Skewed toward salaried  Skewed toward hourly Slide 21 © 2011 NACHA and FIS. All rights reserved.
  • Profile of payroll Direct Deposit adopters vs. non adopters Adopters Non AdoptersPayroll Processing  Outsource to a third party  Do it internally  Savings or MMDA  Merchant Card Processing  Debit CardDeposit & Cash  Receive check images online  Overdraft ProtectionManagement  Overdraft protection  Savings or MMDAServices  Wire transfer  Merchant Card Processing  Debit Card  ACH  Business credit card  Personal credit card of owner  Business credit cardCredit Services  Secured line of credit  Personal credit card of owner  Equipment lease  Company-sponsored retirement planOther Financial  Health savings accountServices  Electronic invoiced presentment  More likely to use online bankingChannel Behavior  Use branches less often Slide 22 © 2011 NACHA and FIS. All rights reserved.
  • Keys to driving Direct Deposit utilization within the non-adopter segment While two-thirds of small businesses do not use Direct Deposit for employee payroll, approximately 40% of them would consider using the service. Approximately 1.3 million small businesses and 6.3 million employees would consider using Direct Deposit The ―best prospect‖ companies for Direct Deposit adoption are: – Between $1 - $10 million in annual revenue – B2B companies, primarily in the professional services, healthcare and financial services lines of trade – Expressed more pain points regarding the payroll process, making them more open to new and external solutions – Believe the biggest benefits of Direct Deposit are employee- and environment-related ones – More likely to use a broader range of deposit, credit and online channel services than non- prospects – Most cited reason for why not using Direct Deposit – ―no one has approached us about it‖ Slide 23 © 2011 NACHA and FIS. All rights reserved.
  • Recommendations – Communication Though awareness of Direct Deposit is high among small businesses, a major reason why Direct Deposit falls short of potential penetration is lack of communication: – 51% of non-users have not been contacted by anyone about payroll Direct Deposit – Only 30% have ever been approached by their bank or credit union. – 34% of non-users considering Direct Deposit say one of the reasons they don’t use it is because no one has approached them. Small businesses need to be persuaded that employer benefits outweigh the cost of Direct Deposit. – Small businesses view Direct Deposit as benefiting their employees more than them. They also acknowledge the environmental benefits of Direct Deposit. – Saving employees’ time is apparent; saving small businesses’ owners time and making the payroll process easier for employers is not. Slide 24 © 2011 NACHA and FIS. All rights reserved.
  • Recommendations – Cross Selling The best prospects for Direct Deposit (non-users who indicate they would consider using it in the future) are more likely to be using other banking services thereby affording the opportunity to cross-sell Direct Deposit with other services such as: – Cash management and deposit services – Banking and financial services, especially company sponsored benefits plans – Credit products, especially lines of credit The best prospects for Direct Deposit also tend to be more active in online banking than non-prospects—affording another opportunity for FIs to communicate the benefits of Direct Deposit. – 86% of the best prospects use business online banking – Half of them access online banking daily or multiple times per day – 80% of them use online bill pay, and they are more likely to be ―bank-site‖ versus ―biller-site‖ bill pay users Slide 25 © 2011 NACHA and FIS. All rights reserved.
  • Contact InformationFIS delivers banking and payments technologies tomore than 14,000 financial institutions and businesses The FIS research team for this project includes:in over 100 countries worldwide. FIS provides financialinstitution core processing, and card issuer and Paul McAdamtransaction processing services, including the NYCE ®Network. FIS maintains processing and technology Senior Vice Presidentrelationships with 40 of the top 50 global banks, 708.449.7742including 9 of the top 10. FIS is a member of Standard paul.mcadam@fisglobal.comand Poors (S&P) 500® Index and consistently holds aleading ranking in the annual FinTech 100 rankings.Headquartered in Jacksonville, Florida, FIS employs Mandy Putnammore than 30,000 on a global basis. FIS is listed on Directorthe New York Stock Exchange under the ―FIS‖ ticker 614.414.4207symbol. For more information about FIS see mandy.putnam@fisglobal.comwww.fisglobal.com. James Gamble DirectorThis research was conducted by FIS Research and 614.414.4213Thought Leadership, a key function of FIS’ Enterprise james.gamble@fisglobal.comStrategy department. The FIS Research & ThoughtLeadership team proactively manages market and Chris Nayclient perceptions of FIS as a thought-leader and Senior Strategic Researcherthought-partner by conducting high-quality primary 614.414.4218research on critical industry issues and delivering christopher.nay@fisglobal.cominterpretation and recommendations to clientorganizations. Slide 26 © 2011 NACHA and FIS. All rights reserved.