– Collection and Disbursement
Future trend: alternative payment methods in the insurance industry
Why diverse payment systems are likely to please numerous customers and insurers
It's no secret: Germans love cash
Even if cashless, digital or even mobile payment methods are on the rise in this country, alternative payment methods are booming. These are equally digital, even though they work with cash. They are offering the advantage, for example, when consumers have to balance solvency gaps in their accounts. More and more insurance companies and health insurances are offering to pay overdue contribution payments or insurance policies anonymously and without additional fees at a discounter or drugstore checkout. All you need at the Rewe counter, at Penny, Rossmann, Budnikowski or the dm-Drogerie, is a barcode such as Barzahlen.de/Viacash.
Claudia Buder, Manager at IKOR Assurance, and Janusz Buttgereit, Director Sales, Insurance, Housing & Telecommunication Business, at Viafintech discuss why this development is important for insurance companies. With the product Barzahlen/Viacash, the fintech is one of the stars among the providers of alternative payment methods. There is therefore also innovation with cash, which by the way is still the only legal means of payment in Germany.
– Fast Lane
In this article you will learn:
- When and why classic payment methods with direct debit and transfer no longer work
- Which payment methods are especially popular from the customer's point of view
- What role play resource and financial pressures in the insurance industry
- How the digital change in the insurance business affects the preferred payment methods from the customer's point of view
- When cash can be an important alternative to card payments, among others
About the experts
Claudia Buder is a manager in Functional Consulting at IKOR Dock Assurance
Janusz Buttgereit works as Director Sales, Insurance, Housing & Telecommunication Business at Viafintech
- Digital change
Customer preferences do not only affect payment methods
„Digital transformation, data protection, innovative payment methods – the insurance industry has to overcome a lot of hurdles at one time“
The classic payment methods are transfer, direct debit or credit card payment. What's changing right now?
Claudia Buder: We are in the middle of the digital transformation, we are experiencing the digital change in the financial sector, the insurance industry and also in ourselves. My parents are still familiar with the checks; I've never used one myself. It is becoming more normal to pay with the smartphone – via PayPal, Klarna and so on. In addition, there is a generational change taking place, with technically versed and social media-savvy people.
The Covid-19 pandemic means that digital payment methods are increasingly being used in Germany as well. Nevertheless, the product Barzahlen/Viacash shows that cash is by no means written off – quite the contrary, right?
Janusz Buttgereit (laughs): That's right. We have introduced our Barzahlen/viacash product in 2013. It was successful from the first moment because it enables cash to be deposited and withdrawn using a barcode at the cash till. In the German-speaking area, we still have a unique selling proposition with our product. In Europe, with more than 20,000 retail branches, we provide one of the largest bank-independent networks for deposits and withdrawals. Our alternative payment method is an asset for various industries such as telecommunications, online and offline retail, banks and, of course, insurance.
Claudia Buder works as a manager in Functional Consulting with a focus on subledger accounting at IKOR Dock Assurance.
„Until recently, insurance companies sent checks, for example for premium refunds; however, there are more cost-effective and innovative options here“
What's so special about it?
Buttgereit: The payment solution is not account-based. This offers customers with insufficient funds or even blocked accounts a huge advantage – concerning collection and disbursement processes.
Can you explain that to us?
Buttgereit: Of course. The classic payment methods with direct debit and transfer no longer work if the account is overdrawn, insufficiently funded or temporarily garnished and thus has a payment problem or default. What happens, for example, if an insurance customer cannot pay the policy for the important motor vehicle insurance premium from his own account? Then the payment problem or default endangers the insurance cover.
„Many insurance companies think too little about how to retain solvent customers with high customer value“
How does Barzahlen/viacash come into play here?
Buttgereit: With our product, we give customers the opportunity to act independently of an account and to pay the insurance premium. Be it because the person still has cash at home. Or because someone else pays... Because other options, such as credit card payments, mobile payments or online banking, are always account-based. When accessing it, the liability problem would be shifted from right to left. Likewise, there is no anonymity of payments here, unlike with our product.
Buder: From an insurance point of view, the dunning process is always about weighing up and consideration. Insurance companies want to keep clients. However, if they are permanently in default with payments – or no longer pay at all and/or fail to contact their insurance company in the event of payment difficulties – there could be far-reaching consequences in the worst case. For example, the shutdown of the car by the Federal Motor Transport Authority if a motor vehicle liability insurance has not been paid.
Buttgereit: Insurance companies should differentiate more when it comes to alternative payment methods. Many do not think enough about how they can keep solvent customers with a high customer value. This is not just about dunning, collections and disbursements, but also offers for cross- and up-selling. This also includes alternative payment methods beyond the classic models.
Buder: Stock preservation is more and more a success factor, also in debt collection. If there happen to be collection incidents, this can be seen in the various dunning procedures. In addition, with Barzahlen/viacash you can not only deposit money but also withdraw it. This is particularly interesting for claims processing – provided that the amount involved is manageable. Up until about two years ago, insurance companies were also sending out checks for smaller amounts, such as premium reimbursements. There are cheaper and more innovative options here.
Buttgereit: That's right. The cash withdrawal option is just as important to our customers as the deposit, the payment itself. Especially in rural areas, where bank branches are dying out, it is a great advantage to settle receivables at the supermarket checkout or to have the money paid out there. For this, we use a 13-digit barcode, which is used nationwide everywhere in retail. We could also have opted for the QR code as the central transaction medium. However, we decided to use barcodes because we were able to rely on technology that is both established in retail and known to customers. It is simply easier and better known to scan a barcode than a QR code – especially when it comes to being integrated into a retailer's checkout software and using the hardware available there.
How easy is it to introduce alternative payment services, especially in insurance companies?
Buder: It's not that simple. Regardless of legal and BaFin regulations, i.e. rules of the Federal Financial Supervisory Authority, the introduction of alternative and innovative payment methods costs money. With a view to a possible offer, previously defined use cases must be set up. With questions like: What do you want to achieve? Which target groups should be addressed? Where is the focus? What do the framework agreements look like? Above all, my advice is: get multiple quotes and compare.
Ms Buder, at the beginning you mentioned the digital transformation and how important reliable parameters and partners are when introducing alternative payment methods...
Buder: The technical systems have to be in place for this. A complete restructuring of the system takes place – also concerning the existing hardware and software. The latter must be re-integrated or even abolished.
For more than fifteen years, the industry has been under enormous pressure to transform. This requires far more investment than the restructuring of the hardware and software already mentioned. Investments must be made in know-how, new business models and processes and changing work and corporate culture. This affects employees, sales partners and changing customer demands. All of this costs a lot of money and companies first of all have to be able to afford all that.
Does that mean that we are facing very high resource and financial pressures?
Buder: Yes. Because in addition to digital change, the entire insurance industry is facing another major challenge: data protection. Companies have had to implement the European General Data Protection Regulation (GDPR) (Datenschutz-Grundverordnung – DSGVO) since May 2018. Not everyone has achieved that by a long way. However, once insurance companies have cleared this hurdle, their segment will increasingly deal with alternative payment methods – with even more digitization and innovative insurance products. These products can increasingly be sold digitally. So a lot is going on. There will be even more movement in the future concerning alternative payment methods. Cash will continue to play a role in this. Not only in Germany.
- In the field of tension
Cash at the checkout versus digital payment methods
The product Barzahlen/Viacash illustrates that there is innovation with cash too. Especially since the underlying processes are purely digital. However, paying without cash is on the rise almost everywhere. Service providers and customers are increasingly turning to alternative, digital payment systems. For example, Sweden plans to eliminate cash across the country by 2030. Every transaction should only take place digitally. In China, the saying that only cash is king is some kind of a relic from a bygone era. Many African countries use mobile payment systems. In Germany, the Covid-19 pandemic is accelerating the use of alternative payment methods.
Even though the euro in coins and bills is the only legal means of payment in Germany and the Germans are known for their loyalty to cash, coins and bills are often no longer welcome in Corona times. This development accelerates the acceptance and use of alternative payment methods. More and more payment systems are ready to be launched on the market: Paying with wearables, voice commerce or even paying with the QR code. Blockchain-based payment, for example of parking fees, is also being tested.
In the long run, the question will not be which means of payment will prevail. There will be a variety of accepted payment options that must be legally legitimized. The cash will certainly not experience hard life anytime soon. It is considered a store of value and is also used as such by the Bundesbank (German Central Bank). Especially since, unlike digital payment methods, cash also works in the event of system failures as a result of hacker attacks, power outages or a broken magnetic strip. - Or when it comes to settling bills beyond the account. Nevertheless, the European Central Bank (ECB) is considering the introduction of a digital Euro, especially with a view to China. Until then, cash remains cash.
Showcase of a Swedish shop: The abolition of cash in Sweden is considered an open experiment. That should help reduce crime. The Swedish central bank is now warning of the complete abolition of cash. In times of crisis, in particular, you need cash to secure your trade.