U.S. Department of the Treasury and the Federal Reserve Prepare to Launch

Grassroots Pilot to Promote Direct Deposit as a Safer, Easier, Faster Way to

Receive Federal Benefits

    WASHINGTON, Sept. 14 /PRNewswire/ -- Retirees and other individuals who
 receive their government payments, like Social Security, by direct deposit are
 significantly less likely to have a problem with their payment than those who
 get checks. Yet the growth rate of direct deposit is down sharply, and many
 Americans still receiving checks are elderly, disabled or low-income
 individuals who would benefit most from this safer, easier and faster payment
 alternative. Seeking to address this challenge before the first wave of baby
 boomer retirements, the U.S. Department of the Treasury (Treasury)
 commissioned a study that revealed check recipients' reluctance to adopt
 direct deposit.
     As a result of the study, "Understanding the Dependence on Paper Checks,"
 the Treasury, together with the Federal Reserve, is launching a six-month
 pilot marketing campaign to increase direct deposit use among Social Security
 and Supplemental Security Income (SSI) beneficiaries. The pilot campaign,
 called Go Direct, will focus on 10 markets:  the counties surrounding Chicago
 and Springfield in Illinois; Knoxville, Memphis and Nashville in Tennessee;
 Austin, Dallas, Houston and San Antonio in Texas; and all of Puerto Rico.
 These 10 markets were selected because they represent large metro areas and
 capital cities within states having a high number of federal benefit check
 recipients.
     "Without a doubt, electronic payments are superior to checks in terms of
 safety, speed and convenience," said Don Hammond, Treasury Fiscal Assistant
 Secretary. "Many of the people who still use checks would benefit the most
 from direct deposit. This research provides valuable insights on how we can
 reach out to these payment recipients so that they can fully understand and
 take advantage of the benefits of direct deposit."
     Direct deposit use among federal beneficiaries grew rapidly in the late
 1990s but has largely leveled in recent years. Despite ongoing educational
 efforts, the growth rate of direct deposit has slowed to less than 1 percent
 per year for Social Security payments. The Federal government issues more than
 13 million benefit checks monthly, with Social Security and SSI representing
 the vast majority.
     Direct deposit offers a significant cost savings to taxpayers. The
 Treasury mails about 160 million benefit checks a year, at an additional
 annual cost of $100 million in postage, printing and other costs. Unless more
 people choose direct deposit, the cost of printing and mailing checks will
 skyrocket in the next few years as America's 77 million baby boomers start
 hitting retirement age in 2008. Treasury has determined that for every check
 payment converted to direct deposit, the government saves 62 cents that can be
 invested in making payments to future generations.
 
     Research Results - Who Chooses Checks, and Why?
     The Treasury study uncovered a number of reasons why benefit recipients
 are reluctant to switch to direct deposit.
 
     -- Emotional ties. Many check recipients said they prefer a physical check
        because it provided a welcome ritual that reminded them to pay bills
        and balance their checkbooks. Check recipients feared that direct
        deposit would take away their sense of control, whereas getting a check
        in the mail felt like "cash in hand."
     -- Inertia. Some of those interviewed said they were willing to switch,
        but simply hadn't done it yet, while others said they had no incentive
        to make a change.
     -- Information gap. The research revealed a fundamental lack of
        understanding about electronic payments. While nearly all respondents
        said they were familiar with direct deposit, most were unable to
        explain accurately how it worked.
     -- Mechanical gap. Check recipients were also significantly less likely
        than direct deposit users to have a bank account or trust the banking
        system. Of those surveyed, 27 percent of Social Security and 68 percent
        of SSI check recipients did not have bank accounts. Yet nearly half of
        Social Security recipients without bank accounts said they regularly
        cashed their benefit checks at a bank or credit union.
 
     In general, check recipients varied widely across geography, race and
 economic status. The research shows that nearly a third (31 percent) were at
 least somewhat inclined to switch to direct deposit, while more than half (53
 percent) were somewhat to very resistant. Those who were more receptive to
 switching tended to be more comfortable with technology and trusting of banks,
 were younger, more urban, and more likely to belong to a minority group than
 the neutral or resistant groups.
     "Direct deposit is an important component of the modern economy," said
 Gary Stern, president of the Federal Reserve Bank of Minneapolis and chair of
 the Federal Reserve's Financial Services Policy Committee. "The Federal
 Reserve is supporting the Treasury in the Go Direct campaign because one of
 our core responsibilities is to foster an efficient and effective payments
 system. This campaign facilitates the elimination of costly check payments in
 our society."  Treasury asked the Federal Reserve, acting as its fiscal agent,
 to conduct the research study and develop and implement an aggressive pilot
 campaign geared at converting a large number of checks to direct deposit.
 
     Go Direct Pilot Campaign
     The Go Direct campaign is expected to launch this fall, and will seek to
 increase the number of direct deposits in the pilot markets. The campaign will
 focus heavily on grassroots outreach to benefit recipients, largely through
 partnerships with community-based organizations and financial institutions.
     Ken Fergeson, chairman of the American Bankers Association, one of many
 national organizations that are champions for the Go Direct campaign, said:
 "We know from Treasury's research that 80 percent of people getting Social
 Security checks come into the lobbies of financial institutions to cash their
 checks. Banks across this country are ready to do what we can to convince
 people that direct deposit is the way to go."
     Go Direct has established a toll-free number for beneficiaries to call to
 sign up for direct deposit: 1-800-333-1795 (English) and 1-800-333-1792
 (Spanish).
 
     Research Summary
     The Treasury's study was conducted by research and consulting firm
 WirthlinWorldwide. For a high-level summary of the research findings, please
 see http://www.GoDirect.org/media/research .
 
 

SOURCE  U.S. Department of Treasury