Electronic transactions typically take less time to create and they cost less to send and they cost less to process. For example, when the State of Minnesota writes a warrant, or check, to pay a bill, the State must not only mail the warrant, but it must also pay the clearing bank a fee for processing the warrant. The average cost for processing a warrant is approximately 10.5 cents per item. By comparison, the average cost of processing an electronic, or ACH, transaction is approximately 5.7 cents per item. This can amount to a lot of money when you consider that the State issues millions of warrants each year.

Direct Deposits

Perhaps the most common example of this type of electronic financial transaction is requesting your employer to deposit your paycheck directly into your bank account. You must sign a form in which you tell your employer the name of the bank and the number of your account in which you want the employer to deposit your paycheck. Your employer typically notifies your bank and tests the transaction to make sure there is no problem on the date of the transaction (this is called a pre-note). You can withdraw your authorization at any time.

Most often everyone involved is happy with this arrangement. The employer saves money because direct deposits take less time to create and cost less to process through the banking system. The employee likes it because the money is automatically in the bank on payday without having to pick up the check and getting it to the bank.

Direct Payments

Instead of writing a check to pay your bills, you pay bills by transferring money directly from your bank account to your creditor’s bank account. In many instances, your creditor prefers this arrangement because your creditor will not have to open the mail and process the check when receiving your payment. In fact, creditors frequently will give discounts to customers who pay their bills electronically.

In some instances, you can also authorize your creditor to come into your bank account and take money from your account whenever you owe the creditor money. Why would you ever allow such an arrangement, which is called an ACH debit? Usually, creditors will give even greater discounts to customers authorizing ACH debits. The primary reason the creditor likes ACH debits is the creditor is assured of receiving payment at an exact time chosen by the creditor. In this way, the creditor can more accurately predict the creditor’s cash position, and more efficiently manage and invest cash resources. ACH debits are most common in the commercial world. However, you frequently see them used by consumers when repaying bank loans, such as car loans and second mortgages. Frequently, the bank will offer a lower interest rate, or perhaps extend a greater amount of credit to borrowers who agree that the monthly payment can be automatically withdrawn from the borrower’s bank account on a date certain.

State statutes require that certain tax payments must be made to the Minnesota's Department of Revenue electronically. If a tax payment is due on the 15th of the month and it is paid electronically, then the money will be in the state's bank account on that same day, the 15th. On the other hand, if the payment is by check, then the money will not be in the state's bank account until the check has cleared, about one to five days depending on how remote the bank upon which the check is drawn is from St. Paul.

• Salary payments to its employees. Approximately 99% of the state's employees have their paychecks deposited directly into the employees' bank accounts. To participate in this program employees should contact their agency payroll department.
• Payments to School Districts
• Payments to Creditors - whenever requested the Treasury Division will arrange with a specific agency to pay an obligation electronically using the ACH payment system.

EBT's are specific examples of electronic direct payments. The Treasury Division takes an active role in developing national operating rules to allow public assistance benefits to be paid to recipients electronically. Ramsey County, Minnesota was a pioneer in this effort beginning in the late 1980's. On July 1, 1997, the State of Minnesota, through its Department of Human Services and the former Office of the State Treasurer (now the Treasury Divison of Minnesota Management & Budget), began the process of implementing EBT statewide using national operating rules, called QUEST, developed by the EBT Council, an independent group within the National Automated Clearinghouse Association (NACHA).    The Treasury Division is a charter member of the EBT Council, representing the State of Minnesota and the National Association of Treasury Divisions (NAST).

All money that is paid into the State of Minnesota must be deposited into a bank account maintained by the Treasury Division. Likewise, all money spent by the state must first be approved by the Commissioner of Finance, then withdrawn from one of the bank accounts maintained by the Treasury Division. The bank is not authorized to pay out any state money without the Treasury Division's prior approval. Since an Electronic Financial Transaction is either a deposit or a withdrawal into or from a state bank account, the Treasury Division is always involved.

The Treasury Division believes that it will continue to become more economical and more efficient to accept deposits and make payments electronically. Therefore, the Treasury Division is doing everything possible to position state government to take advantage of these efficiencies through strategic investments in technology and by encouraging the development of banking functions which adequately protect public monies.

For example, the State must continue its efforts to develop the capability of electronic data interchange (EDI), which allows the State to procure and pay for its purchases without the use of paper and without having to manually pass paper among numerous people in the approval process.

Likewise, the banking system must develop the capability to allow the Treasury Division to limit access to a State bank account to allow ACH debits to specified creditors on specified dates fro specified amounts. When such protections are available then the State can take advantage of savings realized from allowing ACH debits.