My father-in-law drilled this mantra into me during my early years in the insurance business: "The sale is not final until the check clears the bank." Getting paid for the insurance policies an agent sells is a crucial part of running a successful insurance agency. The way agencies have handled the payment process has not changed much over the years: Create and send an agency invoice, receive a check in the mail and deposit it in the bank. Direct bill moved some of the burdens of collecting money to the insurance company, but at the same time transferred some of our clients' loyalty from the agency to the insurer.

Today's consumers are demanding more payment options than ever before. These changing expectations of your clients require you to think about the way you receive money for the policies you sell.

According to the latest New York Federal Reserve study on non-cash payments, the use of paper checks has dropped from 37.3% of transactions in 2003 to 18.3% in 2012 (the latest year available). The use of debit and credit cards has correspondingly increased from 15.6% in 2003 to 47.0% in 2012.

Mobile Payments Are on the Rise

For the past decade, payment companies have been trying to determine how to take advantage of mobile devices to make the payment process easier. After some false starts, viable mobile payment options are gathering steam. Worldwide mobile payment transactions totaled $235.4 billion in 2013, a 44% increase from $163.1 billion in 2012, according to the tracking firm Gartner. They project a 38% jump to $325 billion in 2014.

Starbucks customers can download the company's app to their phone, load it with a credit or debit card, and pay at most of the coffee chain's 11,437 U.S. locations. They open the app, tap Pay, and wave their phone under a scanner at the counter. Mobile device payments now account for more than 11% of payments in U.S. and Canada stores. I use the app to pay at Starbucks and as a bonus receive a gold star as part of their reward program. After 12 Gold Stars I receive a free drink—a great example of increasing customer engagement.

Other merchants have implemented variations on the Starbucks model. Sandwich chain Subway doesn't have specialized scanners at their 26,000 U.S. locations, but their registers can print barcodes that customers can scan with their phone camera to authorize an online payment. Chipotle Mexican Grill's app helps customers order from the road to avoid standing in the chain's long lunch-hour lines.

In addition to reducing barriers to payment, the options provide these retailers a much better way to connect with customers. It also provides insight into customers' long-term behavior.

Apple's announcement of the availability of Apple Pay on the iPhone 6 and 6 Plus—which uses Near Field Communication (NFC) chips in the phone—will continue the trend away from paper to electronic payments. PayPal, Square (the little white dongle you add to your phone or tablet to swipe a credit card), Amazon payments and Google Wallet are all examples of new payment channels your insurance agency should explore.

Because of the widespread use of direct bill payments for personal lines and small commercial customers, agencies have given up the ability to interact with their clients at one of their most common engagement points: making a payment on their policy. Wouldn't it be better to present the customers with coverage upgrade options or round out the accounts after they paid their bill?

The insurance industry—both companies and agents—needs to create a way for customers to pay for their policies using their preferred payment method. The industry needs to find a way to accept electronic payments as soon as possible.

Mobile technology is revolutionizing the global banking and payment industry at a rapid pace. These changes do offer new opportunities for engaging with your clients—if you're willing to take advantage of them. To help you understand the complex issues that the industry faces in order to create electronic payment options, I have created a detailed white paper titled "It is Time to Update Your Payment Process," available at steveanderson.com. This white paper will help you gain a better understanding of the payment industry as well as the opportunities the insurance industry has to accept electronic payments.

Special Reports /

Kick paper checks to the curb: Get on board with mobile payments

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