Smart Digital Payment Strategies: Minimizing Risk, Optimizing Results

The clamor for insurers to embrace an expanding digital payment landscape grows louder by the day—and those hesitant to adapt risk losing market share. A recent Metabank survey  found that 42% of consumers would be more likely to stay with an insurance provider that pays approved claims within minutes. Further, a recent VPay survey  revealed that 53% of policyholders would change carriers to gain access to real-time payment—and those numbers increase among younger generations like Gen Zers (90%) and millennials (68%).

In tandem with consumer expectations, the technology propelling digital payment adoption is advancing at a rapid pace. From automated clearinghouse (ACH) and push-to-debit to virtual cards and emerging wallet offerings, there is greater choice than ever before—yet each payment option comes with its own inherent opportunities and challenges.  

In the race to align strategy with digital payment momentum, insurers would be wise to take a thoughtful approach to their options and consider the dynamics of using a variety of models. Important considerations include how to stay up to date with fraud risks and an ever-changing regulatory landscape. Bringing in the right mix of offerings and optimizing use of each will key to success—especially in a post-pandemic environment. 

Digital Payment Offerings: Risks and Opportunities

Automated Clearinghouse
Today, traditional ACH infrastructures are often viewed as the minimum component of a digital payment strategy. Long embraced by healthcare insurers, ACH transactransactions increased more than 11 percent in 2018 across that sector alone following the 2014 federal mandate that healthcare plans pay providers electronically at their request.   

Recognizing that greater use of ACH also increases the potential for cybersecurity incidents, the National Automated Clearing House Automation (Nacha) implemented new data security requirements  to better protect storage of bank account information. Notably, insurers who use these infrastructures must comply with these rules by June 30, 2021.

While regulatory oversight can create compliance headaches for insurers, the good news is that it also protects against payment fraud. Unlike some emerging digital payment offerings, Nacha rules offer ways for recouping payments that are deemed fraudulent through parameters that allow for disputes and returns. 

Many insurers have embraced ACH as a first step into digital payment. But while ACH is superior to the distribution of paper-based checks in terms of speed and administrative costs, it cannot compete with the velocity of newer technologies—or evolving consumer expectations.

Faster Payment Models
In recent years, the introduction of push-to-debit and virtual card payment models has gained considerable traction. Card-based push payments for consumers enable direct distribution of money to a debit card linked to a deposit account. In contrast, virtual card payments are one-time use cards that allow service providers to process payments immediately on their credit card terminals – speeding payment and reducing fraud.  

Enabling faster funds transfer than ACH, these options are also attractive because they eliminate the need for payees to provide bank account information. Insurers that adopt these models must be prepared to comply with payment card industry (PCI) rules, a set of practices that regulates data security across debit and credit card payments. 

The introduction of the RTP Network (real-time payment) and peer-to-peer offerings such as Zelle is also making waves as insurers consider how to broaden their digital payment portfolios. 

It is important to note that real-time payment models introduce greater risk for insurers in that there is no recourse for recouping payments that may be associated with fraudulent activity. Consequently, insurers must have more controls in place to protect their interests.

A Wise Approach to Expanding Digital Portfolios

Developing a digital payment strategy is fast becoming a matter of market share and sustainability. Not only are consumers demanding faster options, but recent events surrounding COVID-19 point to the need for remote-enabled options for business continuity. 

Foundationally, choice matters to consumers. The VPay survey found that 82% of policyholders say the ability to personalize payment experiences and choose a preferred model is an important factor for policyholder satisfaction.

The best strategies going forward will consider a broad portfolio of options, with an emphasis on best-use cases. For example, some insurers may question whether a push-to-debit option makes sense for every claim. While the ability to accept immediate payments is critical during a disaster, when policyholders need quick access to money, the push-to-debit value proposition may be lower for other types of claims, such as worker’s compensation benefit payments. 

The bottom line is that navigating the complexities of effective digital payment adoption requires a level of expertise and resources that many insurers lack. Building a digital strategy in-house necessitates knowledge of how to manage enrollment, oversee digital claims, comply with regulatory requirements, and secure information. In addition, insurers must consider how to build the right portfolio mix and manage the digital experiences of policyholders. 

It is a tall order that often makes the business case for engaging a third-party fintech partner an easy one to make. In the current market climate, industry analysts now recommend that insurers consider outsourcing non-strategic activities such as document and payment processing, as the need for reducing costs and focusing on policyholder retention has reached a premium. Regardless of how an insurer chooses to move a digital payment strategy forward, those that employ a smart approach based on thoughtful understanding of available options will gain a competitive advantage.