small business adoption of payroll direct deposit

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

http://www.fisglobal.com/index.htm

© 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



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



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



$500,000 to $999,999

Under $500,000

Company Revenue (2009)



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



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.



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



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



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



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



$10 million to$20 million

2009 Revenue

Non-Users

Users



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



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



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



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



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



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



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



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



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



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)



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



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



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‖



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.



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



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

[email protected]

Mandy Putnam

Director

614.414.4207

[email protected]

James Gamble

Director

614.414.4213

[email protected]

Chris Nay

Senior Strategic Researcher

614.414.4218

[email protected]

Contact Information


small business adoption of payroll direct deposit

Economy & Finance