Typical Outbound Payment Times
Average outbound payment times vary considerably. Depending on the payment method you use, a payment may take several days or mere seconds.
- Paper Checks: This method is by far the most time consuming. First, the insurance company has to cut the check and mail it to the recipient. Even priority mail takes one to three days. Then, the recipient has to deposit the check. If the bank places a hold on the deposit, it could be another seven days before the funds become available. As a result, this method may easily take 10 days – and that’s assuming cutting the check and depositing it don’t add extra days to the process.
- ACH: Automated clearing house (ACH) payments, also known as eChecks, electronic bank transfers, and direct debits, are often much faster than paper checks, especially since you don’t have to wait for mail delivery. ACH payments may take up to three business days. However, you can opt for the next-day or same-day option for faster processing. Nacha says approximately 80% of ACH payments settle in one banking day or less.
- Instant Payments: There’s nothing faster than this. Instant or real-time payments occur immediately. Although these payments might not technically be instantaneous in the scientific sense of the word, they only take seconds, which is close enough. Instant payments can also happen outside of normal business hours – for example, on weekends and holidays or at night.
How Fast Is Fast Enough?
When deciding what’s fast enough, consider both the recipient’s attitude and the circumstances. For example, if an auto insurance policyholder needs to get his car back after a collision but that can’t happen until the repair shop is paid, a delay of just a day or two could be a problem. And a payment taking even longer because you sent a paper check could lead to an angry claimant.
In general, faster is better. Unsurprisingly, data from PYMNTS and the Federal Reserve indicate that consumers prefer instant payments. The use of checks and money orders dropped from 47% in 2019 to 31% in 2022, whereas same-day ACH payments increased in the same period. In addition, in a Federal Reserve study from 2022, 75% of consumers reported using faster payment options like PayPal.
How Slow Outbound Payments Hurt Insurers
Slow outbound payments aren’t just annoying – they could be bad for business.
- Vendors may get fed up. Slow payments cause cashflow problems for vendors. If you take too long to pay, vendors may decide that doing business with you isn’t worth their time.
- Claimants may switch insurers. Accenture says insurers could lose up to $170 billion in insurance premiums over a five-year period as unhappy claimants decide to take their business elsewhere. Although many factors impact claimant satisfaction, speed to resolution is a key element. If claimants are already unhappy with slow claims processing times, having to wait for funds could be the last straw.
Insurers That Don’t Adopt Fast Outbound Payments May Fall Behind
According to PYMNTS, 69% of large insurers say the capability to make real-time payments is very or extremely important to their business. Unfortunately, small insurers are falling behind, with 82% citing the cost of implementation as a key barrier.
This gap in instant payment adoption could spell trouble for small insurers. Competing with larger companies is already challenging. A good way for smaller insurers to stand out is by offering exceptional customer service. However, speed is a key part of that. If policyholders can receive faster payments and repairs with bigger insurers, they may not be willing to stick with smaller companies, which could hurt growth.
Solutions Are Available
Although many small insurers cite price as a barrier to instant payments, solutions are available.
Tranzpay provides cost-effective outbound payment options, including ACH, instant deposit, virtual debit cards, Venmo, and PayPal. Plus, we support paper checks, for insurers who still want that option. Our payment services are also PCI DSS and SOC2 compliant, meaning your payments are secure as well as fast and affordable. Learn more.
