Breaking Down Barriers

Automated Clearing House (ACH) transaction volume grew 21.3 percent in the fourth quarter of 2004 compared to the same period a year ago, and NACHA plans to foster that momentum in 2005. "In 2005, we look to build on the amazing success of ARC check conversion and other forms of e-checks," says Elliott McEntee, NACHA president.

NACHA began 2005 with a new board that is developing a new strategic plan for The Electronic Payments Association and the ACH Network. The previous strategic plan, ACH Vision 2000, was created in 1997 and resulted in the development and implementation of the ACH e-check applications, which accounted for an estimated 2.5 billion ACH payments in 2004.

Steve Ellis, NACHA chairman and an executive vice president with Wells Fargo, says the new strategic plan will cover three basic issues: the quickening transition from paper to electronics payments, NACHA's relationship with other groups in the payments system (e.g., BITS) and the role NACHA should play in the payments system over the next few years. One possible direction, according to Ellis, would be for NACHA to get more involved with risk mitigation.

According to McEntee, the NACHA board also will evaluate changes to the existing check conversion rules to lower some of the barriers to check conversion, including the ban against conversion of business checks and the different requirements based on the point at which the check is received, such as the point-of-sale and lock box.

NACHA will work on a strategy for business-to-business electronic payments, McEntee relates. "While consumers have made the big jump from cash and checks to electronic payments, businesses have lagged behind," he says. "NACHA is going to be looking for ways for electronic payments to get the same kind of traction in the corporate arena as they have with consumers."

The next step in the evolution of electronic payments could be the ability of merchants to process them in the most efficient manner (e.g., ACH, wire transfer, electronic check, etc.) depending on the costs, according to John Lucas, first vice president for Mellon Global Cash Management and vice president of NACHA's electronic check council. Systems that would allow such control are beginning to hit the market, he says.

If this technology proves viable, it will solve much of the problem with point-of-purchase conversion, Lucas asserts. Point-of-purchase conversion has yet to take off, he theorizes, because it puts the person accepting the check for payment in the unenviable position of deciding whether it should be converted. That means the cashier needs to determine if the check is a consumer draft or a business check because the latter isn't eligible for ARC conversion.

"It's all about customer choice," Ellis says.

Secure Transactions

Perhaps the biggest challenges in converting more business checks are the differences in security for check and ACH systems, according to Charles B. Bretz, a NACHA director and a senior vice president at Compass Bank. "Banks and companies have a lot invested in the security of their checking systems," Bretz says. "Those [security] systems don't always work the same with ACH transactions."

Similarly, security is a concern with Internet payments, according to NACHA. Still, fourth-quarter Internet payment volume in 2004 was up 36.35 percent over the same period in 2003.

Bretz predicts more growth in Internet payments in 2005 and beyond as more financial institutions and companies invest in the technologies needed to support and secure these payments. "There's a real disconnect if you're ordering over the Internet and still paying with a paper check," Bretz says. Yet he recognizes that financial institutions and companies won't install Internet payment technologies until they see a compelling financial reason to do so.