Hi, this is Tom Field, editorial director with Information Security Media Group. We're talking about payments today. We're talking with an expert in the field, Dennis Simmons, the president of Swatcha. Dennis, thanks so much for joining me today.
Sure, Tom. Why don't you tell us a little bit about yourself and your role with this organization? Sure. I've been with the Association almost 13 years now.
I've been the president for the last nine years. Prior to joining Swatcha, I worked over about 20 plus years in all aspects of commercial banking. I come from a banking family, both my mom and dad were both bankers and my son as a banker, so I've been in and around banking pretty much all of my dog life. My role with Swatcha, obviously, is implementing the strategic vision of the Association's Board of Directors as a leader of the Association, and I'm also charged with being the public place of the Association.
Now, for those of you in our audience who aren't familiar with Swatcha, what can you tell us about the organization, the type of work that you do? Well, Swatcha is an acronym for the Southwestern Automated Clearinghouse Association, which was started back in 1974 as one of the regional clearinghouses that were set up in the early days of the development of ACH to handle the processing of transactions within regions. But over the years, that function has been consolidated into the two main operators in the ACH network. We have evolved into what we refer to as a knowledge-based organization.
We provide training, education, and support for our members in the area of electronic payments. We've got over 1,000 members, which are primarily financial institutions located in the Southwest, and we also run a subsidiary company. Swatcha Services Corporation provides rural compliance audits, and payment systems risk assessments, and payment systems consulting and expert witness services. And I would venture a guest of you folks who have been very busy the last year or so.
That's an understatement. Dennis, what got my attention? You recently conducted a survey on consumer usage of electronic payments. What can you tell us about that survey?
Well, we found that when we'd done a lot of research looking around reading the existing research on the topic, we found a lot of stuff, but we were skeptical about how some of the national surveys played here in the Southwest. We were also skeptical of some of the results because a lot of the surveys that revolve around electronic payments and bill payments, especially, didn't focus on talking to the person in the household. It actually raised the bills, so we wanted to make sure that we were doing that kind of focus. We also wanted to explore where mobile payments were going, mobile banking.
I found myself a little skeptical of some of the high percentages that have been touted as people who are going to be early adopters of using mobile banking on their cell phones and their handout computers and that sort of thing. We commissioned a survey of over 400 people who pay bills to make an assessment of their pattern of usage and that sort of thing. A couple of the results we saw were really quite startling to us. It causes some of the notions that we held.
First, there's a near 100% understanding of direct deposit and how it works. That's significant for us because our members have been funding a consumer awareness campaign about direct deposit. Based on that, we think swatching our members may have to redirect our marketing standards because it's enough to get over 100% penetration, so we're going to talk about some of the other alternatives that are out there in the electronic payment space. We found that to be very enlightening.
One of the other things we found that we think is going to be beneficial to our members is the use of direct deposit as a savings tool. We found that only 30% of the folks that responded to the survey indicated that they put some portion of their payroll into savings via direct deposit. That means that there's certainly an education opportunity for financial institutions and employers to start to emphasize the fact that you can split your payroll into various accounts and using that as a savings vehicle. What was really interesting is that of the 30% who do save through direct deposit, 58% put more than 5% in another account and 14% and this is important put more than 25% in another account.
I think the takeaway there for the financial institutions is that their customers who use direct deposit to payroll are very valuable candidates for some of the other investment vehicles that the banks have. We think in light of where we see some of the upper trends in savings patterns, it's been tallied and touted in the press here recently that there's an opportunity for banks to grab their share of that increased savings dollar. Then we asked a bunch of questions about electronic bill payments and we found that 82% of respondents indicated that they pay at least one bill every month and that's a very high penetration and almost 60% responded that they've been paying bills electronically for more than three years. We found an opportunity for banks and credit unions in this space because 39% of the folks that we talked to use the billers website which means that they're going to two or three or four different websites to pay the bill versus only 34% using their financial institutions to build payments site.
What that indicates is that there's an opportunity for financial institutions to submit their relationship with their customers by tying them more closely to the institution's bill payment services so that they should ramp up their promotion of the bill payment services and we think that's a good customer retention tool. The other thing we asked about was how willing consumers be to pay a late convenience fee if they were going to have to make a last minute or a right at the cost of a payment being passed due. We found that 50% said they would pay a fee to avoid a late charge. We think this is an opportunity for banks to look at their auto loan payment programs and their home equity line of credit programs to offer that as a convenience to be able to generate some fee income understanding that the current regulatory activities make dampen that a bit going forward but it's still an opportunity for some fee income for the financial institutions.
We asked questions about currency and credit cards and trends in check writing and how people use their cards. We also asked, I know this will be important to the folks that are in your audience, we asked a lot of questions about security and I was pleased to note that about 70% of those surveys said they don't have any concerns regarding security of electronic payments but one of the things that was really startling to me as a banker has been around for a long time and the joke was that customers especially consumers never open their bank statements. They don't care, they don't worry about it too much but what we found was that two-thirds of the individuals, two out of three individuals indicated they checked their online statement at least once a week. I thought that was pretty, in some place that perceived stereotypes of customers not paying attention.
I think that means that the financial institutions have been very good at educating and involving their customers and taking care of their business and we still have to reach out to those 30% but I think that that continued outreach is probably going to be a major focus for the FIs going forward. The other thing too is about the concern here again, the perceived risk of the electronic age and again tying back to the security issue. The folks told us that 70% of those surveys did not have any concerns about electronic payments and this is very interesting. 83% of them knew what to do if they had a problem.
The other one that really was starving I was just kind of seemed almost counter-intuitive to 95% of them so they never had a problem with an electronic payment which is again, it's in this townly high percentage of people so they never had a problem. I think there's some good information here for financial institutions in the security space but I think when we start talking about some other concerns that we have I think there's some other things that are out there that we certainly want to talk about. The last thing we wanted to take a look at was the mobile banking stuff. We asked the question, do they use it?
Do they have it? Less than 10% survey said that they are currently using it and almost 80% said they wouldn't use it if their DFI offered the services. That's just the overall survey. When you start to get down to the demographics and look at the age and education and geography of the folks who were saying they would or would not use it, obviously you can start to see the pattern of the people who are a little bit more technologically astute or younger folks who tend to say they'll use it.
The point here is for the bankers to make sure they understand to whom they're marketing and not just trying to have a blanket approach to the marketing of the mobile platform, not because it's got to be very targeted. It makes sense. Dennis, just to go back to your original premise, do you find that the statement from your constituency really was different from what you've been seeing from some of the national surveys? We did.
Especially in the emerging, you know, the mobile stuff. I was in a meeting recently talking with an organization that has done a lot of the work in this stuff and they're saying that 40% of consumers they surveyed so they would use a mobile banking and that does not sync up well with what we're hearing from our consumers who we surveyed. I think it's it's almost a touch point that says, okay, if you talk to anybody in their household, they might say, yeah, we're going to use it. But if you're talking to the person who actually controls the purse strings, I know that my house is my wife.
You know, somebody called me up saying, would you use mobile banking? And I say, sure, and I can just hear the response from hers and over my dead body. So yeah, no, I think it's that's one of the reasons we focus on asking the question about the person who's actually going to be controlling the purse strings. We think that's a very important question to ask.
Just to talk about some other payments and security concerns that you see in the industry. From our perspective, we hear an awful lot about ACH fraud. We hear a lot about electronic payments. What do you and your organization see as some of the biggest security concerns that everyone is facing out?
Yeah, I think when we hear payments fraud and we hear ACH fraud, that sort of thing, I think that one of the things that happens is that it's traditional types of fraud. You know, check fraud has migrated, for instance, into ACH, you know, check conversion applications and that sort of thing. So people writing bad checks, it's just declaring through a different set of rails. But one of the things that's happened recently that has been a great concern to us is that as we saw in the research, consumers are aware of some of these issues.
I mean, they're checking their bank statements, you know, at least once a week online. And so they're taking steps to mitigate it. But I have a real growing concern about small businesses. We've seen with some of the small businesses a recent reaction p-logging into this, where a Trojan was inserted into a unprotected PC, which ultimately resulted in the compromise of the credentials that they used for their online banking system.
And then that compromise was exploited through some online treasury management applications. And all the results and transfers fund out a lot of accounts and some large losses for some VFIs and their customers. And I think it just points to the vulnerability. I mean, small business folks, I mean, you know, my wife runs a small business.
I really sympathize with the idea that they're focused on running their business, making money, especially in this economy. And so making sure that their security procedures on their laptop or their workstation at home is the latest, greatest update, you know, McAfee or Norton, any virus kind of stuff to keep the Trojans off their machine. That's not what they're focused on. And I think we've got to get their attention.
We've got, you know, we've got the banking industry needs to focus on security issues for small business customers. I think that any banking organization, regardless of its size, it's offering any kind of online treasury management services that includes the ability to do wire transfer or easy to reach a mission. It's got to have some effect to what's in place to monitor and detect some of these out of pattern behaviors and the procedures in place to interdict the bad guys. And one of the things that we noticed was that where the breakdown was is that a processor put some new controls in place and forgot to turn on some switches in the banks and having to scramble around to recoup some of these money.
So if it requires constant vigilance, you know that. You can't just sit there and say, okay, gosh, everything's great. We haven't had a problem because we know from experience that something's going to happen. And so I would encourage your listeners to make sure that they're encouraging, especially their small businesses.
I think consumers are good. They're on a good track. I think the large and national companies are good. They understand all this stuff.
They've got IT departments. But most small to mid size enterprises, they don't have a lot of the resources. And perhaps it's something as simple as the bank subscribing to a service and giving that customer these various things and making sure that they use it because it's ultimately protected by a long term. We make a good point that the small businesses certainly don't have the resources, but you find that some of the smaller institutions don't either.
But what are some of the ways that an institution can address some of these concerns of their customers with the available resources that they have? Yeah, one of the things that, again, to circle back to the comment was that I know for a long time, positive pay was out in the marketplace, you know, and we found banks were charging for it. But over time, what happened was, especially in some of the small institutions, they were getting so burned by fraudulent checks that they basically took the position that if you want to be a business customer, you have to deploy positive pay. I'm going to charge you for it, but you have to deploy it.
And it's cut down dramatically on the losses that these banks have incurred from CEPROC. And I think maybe you take the same kind of an approach. You kind of deal with a antivirus vendor or a security vendor, and maybe some of the institutions band together, and they do this cooperatively, and they deploy this to all of their small business customers that have wire transfer and ACX capabilities. And just basically say, here it is, it's free.
You use it, you know, we'll take responsibility. But if you don't use it, we're not going to take responsibility. So I think you shift that liability to the customer, but you make it free so you can't, nobody can argue well if it's too expensive or that sort of thing. Makes sense, Dennis, I appreciate your time and your insight today, especially on the survey and your conclusions from a very informative.
Right. Certainly appreciate the opportunity. And we're going to be doing this survey, we think probably at least annually going forward. So hopefully we'll have a baseline and maybe track the trends and talk again next year and see what happens.
Dennis, we'll look forward to that. For information security media group, I'm Tom Field. Thank you very much.