Paying For The Future

As senior vice president in charge of the Consumer Payment Solutions division at Bank One, Leonard J. Heckwolf is very familiar with the growing importance of electronic payments. Indeed, it's a trend he first started tracking 12 years ago when he headed the ACH business for then Chase Manhattan Bank.

Heckwolf's desire to help shape the evolving electronic payments market led him to the National Automated Clearing House Association (NACHA). Over the years, he has held a number of important positions with the organization, including chair of both the Next Generation Task Force and the Rules and Operations Committee.

In recognition of his dedication, NACHA recently elected Heckwolf chairman of the Board of Directors. Heckwolf recently took some time to speak with BS&T editor Paul Doocey about his new role at NACHA and what he would like to accomplish during his tenure.

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BS&T: What kind of duties do you see yourself performing as chair?

HECKWOLF: My duties will fall somewhere between the core issues of setting rules around electronic payments that move the system forward and being more of a catalyst for change and quickening of the movements of electronics.

There are core functions that NACHA does around government relations and rules setting and making sure that all the banks are in sync and behaving themselves on risk. But I also think there is a higher focus around leadership on innovation, just trying to get the whole shift toward electronic payments moving forward faster. The U.S. has been slow up until now to eliminate checks and go to electronics. Now, the whole thing is starting to gain momentum. If you have been in the business 20 years, you think it has taken too long. But if you look at the last 18 months, it is really starting to fly.

BS&T: Why did electronic adoption take off in this time frame?

HECKWOLF: I think the reason it was so slow for so many years was that the U.S. banking system made it very easy to pass paper, and didn't offer a lot of innovative capabilities that were better than that. Now, between the card products, direct debit and all the Web payments, consumers are really taking advantage of electronic payments. I have a guy that works for me in my sales department who has this line: "My father will never use an ATM and my son will never write a check." That evolution is here. Anyone under 38 is probably not writing very many checks a month.

So the shift toward electronic payments is happening. But the industry needs to provide the capabilities-between card products and ACH-to make it a lot easier.

BS&T: It's reported that NACHA is going to take a stronger look at risk management. How can the ACH network help in this area?

HECKWOLF: NACHA can provide assistance in two key areas. One is around underwriting. The banks need to clearly understand what the risk on electronic payments is. We need to make sure all the players in the game have very clear underwriting around ACH credits and debits. Many do, but there is still work that needs to be done to understand that risk. I think there will have to be some stronger rules around that.

The second part is on the new applications such as Web payments, where the nature of those transactions means there is going to be some higher level of exposure. The truth is electronics should be better then paper checks, but we have got to put the mechanisms in place to protect ourselves.

Some of them are there, but there are more that are needed. We have to look a little more like the card business in terms of the strength of our fraud detection and risk profiles. You know how banks are. We tend to have those capabilities fairly siloed.

BS&T: So fix these problems now, while you're still building the foundation.

HECKWOLF: Right. We have seven billion items now. It's going to get to 20 to 25 billion in the next five years. What are now fairly small issues can become big ones if we don't get ahead of them.

One of the things NACHA is fairly good at is getting the industry to work collaboratively to come to some consensus around an issue and move on it.

BS&T: Another stated goal of NACHA is developing synergies among the various payment networks. Is this a problem right now?

HECKWOLF: There is no value to individual payment mechanisms doing the same thing. It's important that what ACH is really good at-which tends to be focused mostly around check replacement-be leveraged and become the absolute best it can be at that. But you don't need overlap between paper products and electronics products. You don't need overlap between ACH and wire, between ACH and card products. The industry has got to say that in this phase, this solution works, and not have five mechanisms that are all competing and wasting energy on the same space.