How check maker Deluxe is working to digitize coronavirus relief payments
Even digitally savvy organizations face a vexing dilemma when sending emergency funds: The neediest recipients often have little other option than to receive paper checks.
The U.S. Treasury currently is taking heat for mailing checks to millions of citizens in critical need of stimulus funds in the pandemic. The Emergency Assistance Foundation, a nonprofit that distributes employer-sponsored funds to workers displaced by natural disasters and hardships, is mindful of this backlash as it faces a skyrocketing number of coronavirus-related requests.
“Since coronavirus took hold, we’ve had a 2,500% increase in requests for emergency assistance from millions of consumers, and checks are the worst option because they’re inefficient to mail and a hassle for the recipient,” said Doug Stockham, president of West Palm Beach, Fla.-based EAF.
EAF, a nine-year-old firm that uses fintech tools including artificial intelligence and APIs, would like to eliminate checks altogether, but lower-income recipients of its emergency funds often lack access to digital payment options. And many are especially distrustful of receiving funds through new channels in an emergency.
“People in need aren’t sure what to do, and even if you give them a choice they will often fall back on receiving a check out of habit,” said Stockham, who estimates that at least 3% of lower income U.S. workers are shut out of the digital economy.
Not long ago, the EAF began chipping away at its check problem with the help of an unlikely partner — the 105-year-old check-printing company Deluxe Corp.
Deluxe, trying to diversify from its declining checking-business model, has developed a platform enabling EAF recipients to receive relief funds via ACH, PayPal or a virtual prepaid card instead of a check.
The EAF works with about 60 major corporations (300 fund partners), most of them based in the U.S., to distribute IRS-approved employee hardship grants, typically sending out 2,000 payments per month. During the pandemic, more than 5,000 people per day are qualifying for EAF aid.
Less than two years ago, the EAF began working with Deluxe to notify disaster-fund recipients of available money via email addresses typically on file with employers. Through the Deluxe Payment Exchange, EAF sends messages to prospective payees with instructions to securely input their bank or PayPal account details or opt for a virtual Visa card that’s immediately activated via email.
“Recipients who respond to the email and pick a digital payment option can get their money immediately, usually by the next day,” Stockham said.
People who receive the email from EAF can also opt to print out a check for deposit, and the majority choose that option, Stockham said.
One reason may be consumers’ lack of trust or familiarity with new digital payment channels for relief checks that average about $1,500 each, he speculates.
“Even though we’re giving them these other more convenient options, a lot of people will still print and deposit a check because it’s what they’re accustomed to doing,” Stockham said.
Deluxe Payment Exchange, based on a platform devised in 2014, also is rapidly evolving, said Michael Reed, division president of payments, who oversees the service.
Deluxe’s platform integrates with corporations’ existing accounting software, and when funds are sent out to participating corporations’ employees, the platform provides remittance data that is consistent across checks or digital payments, to simplify record-keeping.
To verify recipients’ identities, Deluxe requires recipients who receive an email notifying them of available funds to use a smartphone app to answer a handful of questions.
“Almost everyone has a smartphone, so it works for both communicating by email, verifying recipients’ identities and also receiving digital payments,” Reed said.
Deluxe is hoping to add SMS text notifications as another way to alert recipients of emergency funds availability in the near future, he said.
EAF expects it may take time for more unbanked and underbanked consumers to trust its digital systems, and meanwhile it must straddle older and newer payment options.
“Converting people at the lower end to digital payment channels takes time but it’s happening steadily,” Stockham said.