Friday Flashback: When Banks and Their Customers Feared Direct Deposit

Automatic Deposit, Automatic Fears

By now most bankers and thrift executives recognize the value of the automatic deposit of payroll and dividend checks to both their customers and to the bank itself.

Anything that can reduce paperwork in the bank or savings institution is all to the good. And an automatic deposit program gives the opportunity to achieve just that. For instead of having the employers make up checks for each individual employee and have them cleared and cashed through regular banking channels, the employer sends a reel of computer tape to the financial institution with all the necessary data on it, and the money is cleared to the worker's account automatically.

Certainly there are a few disadvantages for the bank. For the bank which the employer uses for its payroll is now denied the float over the time it would take to clear the checks.

As noted editorially before, something must be done so that the receiving banks which gain the benefit of this automatic movement of funds help to compensate the sending banks for this loss of float.

For if the sending bank is to lose the float and also bear the major cost of the new technique, then there will be little incentive for banks to develop such programs, and the public and the banking industry will not gain their benefit.

Of course, if all banks join the automated clearing house, as has happened in Arizona, then the float loss of one bank on its newly automated payrolls will be its float gain as the other banks automate their customers' payroll accounts, too. But this is a long way off.

And the pricing will have to be changed in the meantime to help motivate banks to start such programs with their own customers.

The real issue is with the employer himself. There are still drawbacks to automated deposit of money in the general public's mind.

Some men refuse to allow automatic deposit of their paychecks, because they do not want their wives to know what they earn. They feel their paycheck and overtime payments are their own business and not something that automatically flows through to the family.

Many wives, however, like the programs. This is not only because it means they learn more financial information about their own households, but also because it avoids the danger of the paycheck being cashed in a bar, with all the hazards that this offers for a reduced net amount showing up at home.

Thus some bankers have decided that the best approach to winning the family over to automatic deposit of the paycheck is to work with the wife instead of the husband. The potential for success is greater in many cases.

Other banks have taken the natural step of giving the husband what he wants: they have offered to have the regular payroll deposit placed automatically and to have extra overtime money paid in the traditional way. They also have offered split cheeks, and other approaches that help to overcome the unwillingness of the breadwinner to have his money deposited automatically.

But the key worry of breadwinners, their wives, and also of the people whose use of automatic deposit programs would be for Social Security checks, dividend and interest payments, and other automatic transfer payments is the fear that something will happen to the process and the money will not be in the bank when the recipient expects it to be.

When a check is deposited, the depositor knows that as of that moment, or after a regular time for collection, the money is available for use. There is a fear that if the tape does not show up from the Social Security system, the employer, or the other payer, then the recipient will be left empty handed.

Here is where the banks can take steps to win friends. For it is up to the bank to guarantee that the money will be available at a regular time each week or month, no matter what happens to the tape with the data on it.

In sum, the bank must take the chance that its receipt of the funds will be late. But customers must have certainty. Otherwise, all marketing efforts will be of little use to a scared public.