Historically, consumers have only been able to make debit card payments on their mortgages as a last resort. In many cases, the option of making debit card payments was simply unavailable, and mortgage payments could only be completed through checks and ACH transfers. Mortgage servicers are usually hesitant to include debit cards as a legitimate payment option because of the processing fees associated with debit card transactions.
But accepting debit cards for mortgage payments can actually be cost-effective for mortgage servicers. Although debit card transactions do involve processing fees, they significantly mitigate the cost of exceptions. Through real-time reporting, debit card payments reduce the number of exceptions that occur and the time it takes to manage them. With the right payment technology in place, accepting debit cards can lead to higher levels of customer satisfaction, higher efficiency, and better cash flow.
Consumers Prefer Debit Cards
Debit cards are widely accepted in other sectors of Consumer Finance, such as the Auto Finance industry, because they enable companies to accept secure electronic payments that process much faster than paper check and ACH payments. Debit card payments also provide Consumer Finance companies with a real-time report as to whether or not the payment was successful, which benefits both the company and the borrower. This is part of the reason debit card payments are the payment method that consumers prefer and why it is the most popular payment channel to date.
According to the Federal Reserve's 2016 payments study, debit card payments make up 69.5% of all noncash transactions. Debit cards are also likely to be the most popular consumer payment method in the future. About one in four Millennials carry less than $5 in cash each week and rely on their debit cards for purchases. Although debit cards were made popular by Generation X, Millennials prefer debit card payments over others because they can easily keep track of their balances by checking online with a smartphone instead of having to balance a checkbook or run up interest on a credit card.
Consumers enjoy having choices when making bill payments. Payment by debit card is convenient for bill payers because it allows them to pay from anywhere, at any time, by simply pressing a button, making a phone call, or scheduling out recurring payments. Today, most consumers expect debit as an option for making their everyday payments. Moving forward, consumers will also expect the option to pay their mortgage through an online portal using their debit card.
As Millennials continue to enter the housing market and as more consumers adopt electronic payment methods, mortgage servicers need to be able to accommodate their customers' payment habits.
Debit Card Acceptance Benefits the Mortgage Servicer
Accepting debit cards can provide mortgage servicers with significant cost savings due to lower operational expenses. Widespread consumer adoption of debit card payments will reduce the number of paper checks a mortgage servicer receives. This, in turn, reduces the amount of time spent processing checks, which can save the mortgage servicer money in the long run.
Like other electronic payment methods, debit card payments also dramatically reduce the wait time consumers experience when their check is in the mail and being processed by the bank. This means there is less risk that a consumer will overdraw their account in the interim. Accepting debit cards leads to fewer exceptions and delinquent payments and can lead to higher levels of customer satisfaction. They also give consumers the ability to pay instantly when they have the available funds in their account.
When a mortgage servicer takes an online debit card payment, they will receive a real-time response as to whether or not the payment was successful. In the case of paper check and ACH payments, the servicer won't know if a payment was successful for 1 to 2 business days. If the company then receives a message that the borrower had insufficient funds for their payment, the company will need to determine late fees, recalculate interest, inform the borrower, and wait even longer for that payment to be received.
Mortgage servicers can also reduce the volume of customer service calls they receive by accepting debit cards online. Fast, accurate, on-time debit card payments will lower the risk of customer service issues. Consumers who prefer to pay over the phone can still be accommodated when mortgage servicers accept debit card payments through a live agent or an IVR system.
The Mortgage Market is Changing
Homeownership began to increase after the financial crisis, and in 2015, the value of U.S. mortgage debt rose to $13.8 trillion. As everyday payment trends and bill payment trends continue to go electronic, more and more mortgage servicers will begin to adopt debit cards as a payment option for their customers. With the influx of new payment technologies that can enable debit card acceptance without credit card acceptance, mortgage servicers and other consumer finance companies can accept debit card payments online from all of their customers.
Including debit cards as an additional channel gives consumers an additional choice for making their mortgage payment, which increases the likelihood that they will pay on time. As electronic payment trends continue, it is likely that debit card and ACH payments will make up the bulk of all consumer mortgage payments. This is good news for mortgage servicers because, most importantly, accepting debit cards can increase cash flow significantly.