Following the implementation of NACHA's (Herndon, Va.) new rules governing back-office conversion (BOC), banks are introducing new services to take advantage of the latest form of electronic check conversion. While BOC enables banks to accelerate check processing and reduce costs, adoption will be measured at first, say many bankers and experts.
BOC allows retailers and billers to convert checks to automated clearinghouse (ACH) debits in the back office. It also permits banks to convert eligible checks received in image files to ACH debits, according to NACHA-The Electronic Payments Association. In addition to eliminating costs associated with transporting checks, BOC provides businesses with faster funds availability and may help reduce fraud.
Still, adoption will be measured at first, notes Elliott C. McEntee, president and CEO of NACHA. BOC likely will take nine months to a year to reach its tipping point, he says.
Point-of-purchase (POP) check conversion -- in which each register is equipped with a check scanner -- will still be available to retailers, but BOC eventually will replace POP, says Financial Insights. The Framingham, Mass.-based research company predicts that BOC will grow 110 percent between 2007 and 2008, with 333 million transactions in the first year. But retailers are reluctant to adopt the operational changes needed for BOC, including training, storage and handling, Financial Insights adds.
What Banks Are Offering
Banks, however, are introducing BOC solutions. "Banks have done a lot in terms of creating services for retailers, and retailers are taking advantage of that," says NACHA's McEntee.
The necessary technology shouldn't be an obstacle to adoption, either. Banks and payments vendors typically are building BOC capabilities into existing remote deposit systems, which are often Web-based. And retailers that utilize remote deposit capture already have check scanners in place.
According to McEntee, banks offer three types of BOC services to business customers. One requires the retailer to image the check and transmit the ACH file. A second involves the retailer transmitting the check image to its bank, which then converts the image to an ACH file. The third level of service requires the bank to deposit a physical check; the retailer simply posts signs notifying customers that checks may be converted and that they have the ability to opt out.
Minneapolis-based U.S. Bank ($218 billion in assets) offers three BOC services, relates Stephanie Schmitt, the bank's VP, treasury management, commercial product management. One is an enhancement to its existing Electronic Check Service (ECS), which processes check and card transactions and offers a range of transaction risk services, including check verification, guarantee and collections. Another option is on-site electronic deposit, a Web-based remote deposit solution that allows businesses to scan checks individually or in batches and submit their deposits electronically from multiple sites.
Although only a "very small percentage" of U.S. Bank's business customers have signed on to BOC, Schmitt says, the bank has a number of prospects in the pipeline.
Bank of America (Charlotte, N.C.; $1.3 trillion in assets) and Wells Fargo (San Francisco; $400 billion in assets) also have unveiled BOC services, and several vendors have enhanced their payments solutions to support BOC. Alogent Corp. (Alpharetta, Ga.), for example, added functionality to its Sierra solutions to support centralized BOC. And NetDeposit (Salt Lake City) released a BOC solution in April.