small business adoption of payroll direct deposit
TRANSCRIPT
Driving Revenue & Profits in Electronic Payments…
PROPRIETARY / CONFIDENTIAL: This document is NACHA’s proprietary
confidential information and may not be circulated without prior approval.
© 2011 NACHA. All rights reserved.
Ian Macoy, NACHA
Paul McAdam, FIS
April 4, 2011
Small Business Adoption of Payroll Direct Deposit
© 2011 NACHA and FIS. All rights reserved.
Slide 2
As support for NACHA’s promotion of Direct Deposit use among small
businesses, 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
Background
© 2011 NACHA and FIS. All rights reserved.
Slide 3
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
Research Methodology
© 2011 NACHA and FIS. All rights reserved.
Slide 4
Respondents by annual revenue and number of employees
6%
10%
23%
23%
16%
21%
101 or more employees
51 to 100 employees
21 to 50 employees
11 to 20 employees
6 to 10 employees
2 to 5 employees
Number of Employees
* 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
7%
12%
20%
19%
19%
24%*
$10 million to $20 million
$5 million to $9.99 million
$2 million to $4.99 million
$1 million to $1.99 million
$500,000 to $999,999
Under $500,000
Company Revenue (2009)
© 2011 NACHA and FIS. All rights reserved.
Slide 5
Key small business lines of trade were well represented
2%
1%
2%
2%
2%
3%
3%
3%
4%
4%
5%
5%
6%
7%
7%
8%
10%
13%
13% *
Other
Agriculture, Forestry, Fishing, Mining
Personal Care Services
Educational Services
Repair and Maintenance Services
Administrative & Support Services
Information (e.g., publishing, broadcasting, data processing,…
Arts, Entertainment or Recreation
Transportation or Warehousing
Manufacturing
Non-Profit, Charity, Civic, Social or Religious Organization
Real Estate Sales, Rental or Leasing
Wholesale Trade
Financial or Insurance Services
Accommodation or Food Services
Healthcare or Social Assistance
Construction
Retail Trade
Professional, Scientific or Technical Services
Small Businesses Lines of Trade
* Read as: 13% of respondents work in the Professional, Scientific, or Technical Services industry
What is your company’s primary business? n = 2,248
Over 100 completed
surveys within
these lines of trade
© 2011 NACHA and FIS. All rights reserved.
Slide 6
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.
© 2011 NACHA and FIS. All rights reserved.
Slide 7
Nearly half of the small businesses surveyed use payroll Direct Deposit, another 20% are potential adopters
52%
Use 20%
10%
18%
48%
Don’t Use
Would consider in the future
Would not consider in the future
Unsure
94%
of small
businesses are
aware it is
possible to offer
payroll Direct
Deposit
Awareness Usage Consideration
© 2011 NACHA and FIS. All rights reserved.
Slide 8
We estimate that 34% of U.S. small businesses with 2 – 100 employees use Direct Deposit
34%
Use Direct
Deposit 66%
Don’t Use
Direct
Deposit
Use of Direct Deposit among Businesses with 2 – 100
employees 83%
17%
• 4.7 million of these firms in the U.S.
• They employ 41 million people
of employees do not use Direct Deposit.
4.0 million employees in total
of employees use Direct Deposit.
18.8 million employees in total
46% 10% 44%
Use Direct Deposit
Work at a firm that offers Direct Deposit, but don't use it
Work at a firm that does not offer Direct Deposit
Direct Deposit Usage Among All Employees of Small Businesses
Source: Statistics of U.S. Business from U.S. Census Bureau, FIS analysis
# Firms # Employees at
these Firms
2 to 5 employees 2,014,230 4,028,461
6 to 10 employees 615,084 4,052,024
11 to 20 employees 283,247 3,801,464
21 to 50 employees 139,746 4,198,355
51 to 100 employees 31,625 2,162,024
Total 3,083,932 18,242,329
© 2011 NACHA and FIS. All rights reserved.
Slide 9
Most Direct Deposit users encourage their employees to adopt it and offer the option to split their deposits
* Read as: 91% of Direct Deposit users encourage employees to use payroll Direct Deposit. n = 1,041
71%
91% *
Company currently offers its employeesthe ability to split their payroll Direct
Deposit into multiple financial accounts
Company encourages employees to usepayroll Direct Deposit
Direct Deposit Usage
© 2011 NACHA and FIS. All rights reserved.
Slide 10
As company revenue increases, the likelihood of Direct Deposit usage increases
* Read as: 21% of those who have less than $500k in 2009 revenue are users
Please select the box below that corresponds to your firm’s total revenue in 2009. n = 2,021
21%
41%
55%
65%
79% 82%
79%
59%
45%
35%
21% 18%
Under $500,000 $500,000 to$999,999
$1 million to$1.99 million
$2 million to$4.99 million
$5 million to$9.99 million
$10 million to$20 million
2009 Revenue
Non-Users
Users
© 2011 NACHA and FIS. All rights reserved.
Slide 11
Similarly, as the number of employees increases, so does the likelihood of Direct Deposit usage
* Read as: 18% of those who have 2 to 5 employees are users
How many individuals (in full-time equivalents) does your company employ? n = 2,021
18%
*
41%
55% 65%
75% 79%
82%
59%
45% 35%
25% 21%
2 to 5employees
6 to 10employees
11 to 20employees
21 to 50employees
51 to 100employees
101 or moreemployees
Number of Employees
Non-Users
Users
© 2011 NACHA and FIS. All rights reserved.
Slide 12
Higher percentages of Direct Deposit users tend to be services industries or manufacturing related
* Read as: 70% of financial services or insurance services small businesses are users
What is your company’s primary business? n = 2,021 Average
28%
33%
34%
37%
40%
43%
44%
45%
45%
52%
54%
58%
62%
63%
63%
65%
67%
70%*
72%
67%
66%
63%
60%
57%
56%
55%
55%
48%
46%
42%
38%
37%
37%
35%
33%
30%
Repair and Maintenance Services
Accommodation or Food Services
Personal Care Services
Retail Trade
Construction
Wholesale Trade
Arts, Entertainment or Recreation
Real Estate Sales, Rental or Leasing
Agriculture, Forestry, Fishing, Mining
Transportation or Warehousing
Administrative & Support Services
Healthcare or Social Assistance
Professional, Scientific or Technical Services
Manufacturing
Non-Profit, Charity, Civic, Social or Religious
Educational Services
Information (e.g., publishing, data processing, libraries)
Financial or Insurance Services
Small Business Lines of Trade
Users Non-Users
© 2011 NACHA and FIS. All rights reserved.
Slide 13
The vast majority of companies that outsource payroll to a payroll processor offer Direct Deposit
* 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
41% *
54% 56%
83%
59%
46% 44%
17%
Myself or our internalaccounting/payroll staff
Divided between myselfor internal staff and our
accounting firm
Outsourced to ouraccounting firm
Outsourced to a third-party payroll processing
firm
Who Manages Payroll
Non-Users
Users
© 2011 NACHA and FIS. All rights reserved.
Slide 14
Time savings, cost effectiveness and employee demand are the key adoption motivators
5%
11%
15%
22%
24%
24%
44%
48%
57% *
Other
Received incentive from payroll provider
Bank or credit union recommended it
Reduces need to monitor payroll and tax law changes
Better for the environment
Reduces number of errors
Employees requested it
More cost effective
Saves time
Primary Factors Leading to Adoption of Direct Deposit (among Direct Deposit Users)
* 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
© 2011 NACHA and FIS. All rights reserved.
Slide 15
Less than one-third of companies have 100% employee participation
* Read as: 30% of small businesses with Direct Deposit have 100% of their employees participating
Approximately what percentage of the company’s employees currently receive payroll Direct Deposit? n = 1,041
3%
7%
11%
24%
25%
30%*
1% to 24%
25% to 49%
50% to 74%
75% to 90%
90% to 99%
100%
Percent of Employees Using Direct Deposit (Among Direct Deposit Users)
• 79% of companies reported that
more than 3/4 of employees use it
• 83% of employees use it on average
© 2011 NACHA and FIS. All rights reserved.
Slide 16
Preference for receiving checks is a key reason cited for employees not using Direct Deposit
* Read as: 51% of Direct Deposit users cite ―prefer receiving checks‖ as a primary reason why some of their employees do no use Direct Deposit
What is the primary reason that not all employees use payroll Direct Deposit? n = 733
13%
4%
7%
18%
18%
30%
51% *
Don't know
Other
Distrust banks
Distrust electronic banking
Privacy issues
Don’t have bank accounts
Prefer receiving checks
Why Some Employees Do Not Use Direct Deposit (among Direct Deposit Users)
• 97% of them are paid with checks
• Only 3% with payroll cards
© 2011 NACHA and FIS. All rights reserved.
Slide 17
“Too few employees to justify it” is the leading reason small businesses don’t offer Direct Deposit
7%
2%
9%
10%
14%
17%
17%
19%
21%
26%
28%
46% *
Other
We’ve tried using Direct Deposit before, but were disappointed in its performance
Setup process is too difficult
Setup process is too time consuming
Want to take advantage of “check float” obtained by paying employees using paper checks
Most of the company's transactions are in cash or check
Many of our employees do not have a checking account
Many of our employees are temporary, seasonal or part time
Direct Deposit is too expensive
No one has ever approached the company about using DirectDeposit
Our employees prefer receiving checks and/or cash
We have too few employees to justify it
Reasons Why Company Does Not Offer Direct Deposit
* 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
© 2011 NACHA and FIS. All rights reserved.
Slide 18
“Too few employees” has more 1st ranks but “too expensive” has highest ratio of 1st ranks to total mentions
42%
64%
50%
52%
11%
14%
14%
24% *
No one has approached the company aboutusing Direct Deposit
Direct Deposit is too expensive
Our employees prefer receiving checks and/orcash
We have too few employees to justify it
Ranking of Top Obstacles to Direct Deposit Adoption
Ranked First
First/Total
* 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
© 2011 NACHA and FIS. All rights reserved.
Slide 19
Users hold higher opinions of the benefits of Direct Deposit than non-users
* 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)
85% *
78%
76%
70%
69%
57%
49%
30%
55%
45%
41%
51%
39%
31%
27%
29%
(Would) save(s) our employees time
(Would be) is a valued employee benefit
(Would be) is easier than paying employees using paperchecks
(Would be) is better for the environment
(Would) save(s) my company time compared to payingemployees using paper checks
(Would be) is less expensive than paying employeesusing paper checks
(Would) reduce(s) errors relative to paying employeesusing paper checks
(Would) cause(s) my company to lose valuable “check
float” compared to issuing paper checks for employee payroll
Strongly Agree/Agree (top two box)
Users
Non-users
© 2011 NACHA and FIS. All rights reserved.
Slide 20
Messaging around employee benefits, environment and easier/saves time will resonate with prospects
77% *
68%
68%
60%
59%
43%
38%
35%
29%
32%
19%
20%
18%
20%
18%
23%
Would save our employees time
Would be better for the environment
Would be a valued employee benefit
Would be easier than paying employees using paperchecks
Would save my company time compared to payingemployees using paper checks
Would be less expensive than paying employees usingpaper checks
Would reduce errors relative to paying employees usingpaper checks
Would cause my company to lose valuable “check float” compared to issuing paper checks for employee payroll
Strongly Agree/Agree (Among Companies not Using Direct Deposit)
Prospects
Non Prospects
* 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 time
Please indicate how strongly you agree or disagree with each statement below about using Direct Deposit for employee payroll . n = 980
Note: Direct Deposit users were asked a different question (how do) than non-users (i.e., how would)
© 2011 NACHA and FIS. All rights reserved.
Slide 21
Profile of payroll Direct Deposit adopters vs. non adopters
Adopters Non Adopters
Annual Revenue > $2 million < $750,000
# of Employees > 20 < 5
Industries
Financial services Information services Education Professional services Manufacturing Non-Profit or Religious
Repair & Maintenance Services Accommodation & Food Services Personal Care Services Retail Trade Construction
Attitudes
Saves employees time A valued employee benefit Easier than paying with checks Better for environment Saves company time Less expensive than checks
Saves employees time Better for environment
Employee Base Skewed toward salaried Skewed toward hourly
© 2011 NACHA and FIS. All rights reserved.
Slide 22
Profile of payroll Direct Deposit adopters vs. non adopters
Adopters Non Adopters
Payroll Processing Outsource to a third party Do it internally
Deposit & Cash Management Services
Savings or MMDA Merchant Card Processing Receive check images online Overdraft protection Wire transfer Debit Card ACH
Debit Card Overdraft Protection Savings or MMDA Merchant Card Processing
Credit Services
Business credit card Personal credit card of owner Secured line of credit Equipment lease
Business credit card Personal credit card of owner
Other Financial Services
Company-sponsored retirement plan Health savings account Electronic invoiced presentment
Channel Behavior More likely to use online banking Use branches less often
© 2011 NACHA and FIS. All rights reserved.
Slide 23
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‖
© 2011 NACHA and FIS. All rights reserved.
Slide 24
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.
© 2011 NACHA and FIS. All rights reserved.
Slide 25
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
© 2011 NACHA and FIS. All rights reserved.
Slide 26
FIS delivers banking and payments technologies to
more than 14,000 financial institutions and businesses
in over 100 countries worldwide. FIS provides financial
institution core processing, and card issuer and
transaction processing services, including the NYCE®
Network. FIS maintains processing and technology
relationships with 40 of the top 50 global banks,
including 9 of the top 10. FIS is a member of Standard
and Poor's (S&P) 500® Index and consistently holds a
leading ranking in the annual FinTech 100 rankings.
Headquartered in Jacksonville, Florida, FIS employs
more than 30,000 on a global basis. FIS is listed on
the New York Stock Exchange under the ―FIS‖ ticker
symbol. For more information about FIS see
www.fisglobal.com.
This research was conducted by FIS Research and
Thought Leadership, a key function of FIS’ Enterprise
Strategy department. The FIS Research & Thought
Leadership team proactively manages market and
client perceptions of FIS as a thought-leader and
thought-partner by conducting high-quality primary
research on critical industry issues and delivering
interpretation and recommendations to client
organizations.
The FIS research team for this project includes:
Paul McAdam
Senior Vice President
708.449.7742
Mandy Putnam
Director
614.414.4207
James Gamble
Director
614.414.4213
Chris Nay
Senior Strategic Researcher
614.414.4218
Contact Information