NACHA's Wheels

By Mark Brousseau





NACHA's Pay It Green sport utility vehicle (SUV) at its Payments 2011 conference last week in Austin, Texas.

New NACHA rule will streamline remittance processing

By Mark Brousseau

Hoping to make automated clearing house (ACH) processing more appealing to businesses – especially smaller ones – NACHA is doing away with its outdated opt-out provisions for Accounts Receivable Check (ARC) Conversion and Back Office Conversion (BOC) transactions.

The new rules, which will be effective March 18, reverse a longstanding policy that requires billers and merchants to let consumers choose not to have their checks converted to electronic debits. Merchants and billers will still have to give notice to customers that their checks will be converted.

NACHA sees the rules change as particularly important as smaller merchants and billers look at adopting ACH payments as an alternative to remote deposit capture (RDC), which allows businesses to create images of checks and deposit them electronically to a financial institution.

With ARC, billers are able to convert paper checks they receive from consumers at designated lockboxes into electronic transactions. With BOC, merchants can batch consumer checks throughout the day and convert them later—typically, in a back office rather than at the point of sale—into electronic debits. While ARC and BOC opt-out rates have been marginal, typically running well under 1 percent of all consumers, the handling of these exception items was a big hassle for billers.

“This is a step in the right direction for businesses,” says US Dataworks Product Manager Leilani Doyle. “Businesses no longer are required to offer opt-out indicators on their remittance documents or worry about honoring an opt-out provision, if they don’t want to. This simplifies remittance processing. But the fact is, a miniscule number of opt-outs have been requested since the ARC rule was introduced. And, consumers are only becoming more comfortable with electronic payments.”

What do you think?

WEB payments up, unauthorized transactions down

Posted by Mark Brousseau

Companies experienced cost savings in 2009 as people switched to lower cost ACH bill payments and companies spent less time managing unauthorized debits.

WEB bill payments (ACH payments initiated at the billing company's website) grew 9.7% in 2009 vs. 2008 and unauthorized WEB debits decreased 13% down to 0.04%.

One utility company in Florida continued their strong growth in 2009. However, this utility company has not always grown their electronic payments at impressive rates. Looking back to 2004, the utility's electronic payment adoption rate was well below industry average. The utility company substantially increased their electronic payment options and integrated the entire payment process resulting in a tripling of their electronic payment adoption rate.

Source: NACHA, April 7, 2010

TAWPI @ NACHA Payments

today Magazine Editor Mark Brousseau looks on as J&B Software's Mike Packer demonstrates the vendor's Mobile Deposit solution at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

Posted by Mark Brousseau

Mike Packer of J&B Software (pictured) demonstrates the vendor’s Mobile Deposit solution yesterday at NACHA’s Payments 2010 at the Washington State Convention Center in Seattle. The solution, developed by Mitek Systems and incorporating J&B Software’s workflow and check clearing capabilities, enables users to make remote check deposits using mobile smartphones.

“Mobile Deposit makes a lot of sense for companies that don’t have a lot of check volume, such as a business with five to six checks a week,” Packer says, adding that J&B Software would fall into that category since it receives most of its payments electronically. “Banks have been slow to move on this,” he says, noting the vendor has several pilots underway among its customers. “But in five to six months, we expect to have significantly more conversations on Mobile Deposit as bank IT budgets begin to loosen up. SaaS will help adoption by making it easier for banks to set-up mobile deposit.”

Packer says the vendor’s recently introduced SaaS delivery model for Mobile Deposit was generating a lot of interest at Payments 2010. The SaaS delivery model eliminates barriers to entry, allowing organizations to quickly adopt mobile deposit with minimal up-front cost and setup requirements, Packer says. “SaaS extends mobile deposit to millions of potential new users,” Packer says, noting Mobile Deposit is targeted to banks, brokerages, retailers, insurers, consumers and freight companies.

The solution captures check images through a mobile smartphone and prepares them for transmission to the financial institution as Check 21-compliant images using Mitek's mobile IMagePROVE technology. For security purposes, a complete audit trail of where, when and how each check was captured is logged. No data or images are stored on the smartphone, Packer says, and all communication is 128-bit encrypted.

TAWPI @ NACHA Payments

Posted by Mark Brousseau

William Buser, director of sales, Pertech Resources, says he spoke with a “fair amount” of financial institutions at NACHA’s Payments 2010 at the Washington State Convention Center in Seattle that were interested in teller capture solutions. In the short time I was in the Pertech Resources booth, a number of prospects stopped by, as well as an analyst for a top financial services research firm.

“Some solutions vendors are saying that teller and back-counter branch capture are dead,” Buser says. “But many financial institutions, particularly smaller ones, still aren’t doing either one. What’s really happening is that financial institutions are telling these vendors they aren’t going to purchase a big, expensive batch-feed scanner for the branch. And we’re saying that they don’t have to.”

At Payments 2010, Pertech Resources was demonstrating a new compact workstation (pictured with Buser) for teller and branch capture that costs a fraction of the price of batch-feed scanners, and has the ability to swipe any magnetic card, including credit and debit cards. The workstation already is interfaced to a number of core processing solutions, including Fiserv, Jack Henry & Associates, and FIS, and soon Pertech anticipates that a core processing vendor will offer scanning software as part of a package for the workstation (meantime Pertech Resources offers it own). In addition, Buser says Pertech Resources plans to offer a software package for the device to read drivers licenses or healthcare cards.

The bottom line: “Teller and branch capture is alive and well if you have the right solution,” Buser says.

TAWPI @ NACHA Payments

R. Edwin Pearce (pictured, far left) and Dax French (far right), both of eGistics, Inc., greet employees of SunTrust this afternoon at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

R. Edwin Pearce, executive vice president of sales and corporate development for eGistics, hands Michele M. Naghoon, AAP, vice president, ACH production manager, SunTrust, the Flip camcorder that she one through eGistics' prize drawing at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

Ed Bachelder, director of research, BlueFlame Consulting, reads the latest issue of his favorite magazine this afternoon at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

today Magazine Editor Mark Brousseau celebrates his birthday over lunch at the Cheesecake Factory during NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

today Magazine Editor Mark Brousseau greets George H. Bassous, chief technical officer, Affirmative Technologies, this afternoon at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

Rick Krauss, ICP, associate consultant, accounts services in Dallas, Allstate Insurance Company, reads the latest issue of his favorite magazine this afternoon at NACHA's Payments 2010 at the Washington State Convention Center in Seattle.

TAWPI @ NACHA Payments

J.P. Morgan’s Treasury Services business continues to be the industry leader in ACH payments origination volume. J.P. Morgan was ranked first in ACH payments origination for 2009, according to NACHA, The Electronic Payments Association.

“J.P. Morgan’s commitment to quality has set the stage for our continued stability and our capacity to successfully support clients amidst the financial turmoil of the past year,” stated Pat Thelen, executive director, J.P. Morgan Treasury Services. “We are constantly challenging ourselves to improve efficiency, which enables us to help our clients further streamline their payment processes.”

J.P. Morgan continued its online payment growth in 2009, achieving an increase of 16 percent over the previous year. “This growth in electronic payments is a result of the increase in online payment transactions,” explained Thelen. “As consumers and small businesses increasingly adopt online banking tools that deliver a convenient, secure, electronic means of making payments, J.P. Morgan is helping clients manage these rising online banking volumes efficiently. While we continue to enable consumers to make payments electronically through Chase.com, we are similarly helping billers manage the accounts receivable process with products such as eLockbox. We support the entire electronic payments cycle for our clients.”

TAWPI @ NACHA Payments

Posted by Mark Brousseau

Today’s announcement that NACHA was bringing its long-awaited Electronic Billing Information Delivery Service (EBIDS) to market got me wondering whether NACHA was planning to leverage a similar concept to address inefficiencies with health payments. After all, the attributes of the ACH Network that NACHA President and CEO Janet O. Estep cited as key differentiators for electronic bill payment and presentment – ubiquity, efficiency, security and the ability to pass information and payments across the network – also would prove valuable in the healthcare payments space.

“Your intuition is correct,” Estep told me during an exclusive interview at NACHA’s Payments 2010 event at the Washington State Convention Center in Seattle. “Healthcare payments have many attributes that are addressed by the ACH Network: There is a lot of information that must accompany payments. There are a lot of parties involved. And there is a need for security. There are standards available today within the ACH Network that can help transport health payments in a secure way.”

While NACHA has not had conversations with healthcare organizations, Estep said, “NACHA has engaged in conversations with a lot of direct financial institution members as healthcare payments have become a more important issue. We also have spoken with legislators and other rule-making bodies in healthcare. We even created a very small page on the NACHA Web site on healthcare payments. We’re going to continue this dialogue in the next year or so and see where it leads.”

ECP Implementation Tips

By Mark Brousseau

Electronic check presentment (ECP) is becoming an increasingly important part of the lockbox services mix. With electronic clearing, billers can achieve significant benefits when processing their receivables through a lockbox, including reduced deposit fees, faster funds availability, improved collections, later deposit windows, and streamlined returns handling.

But like any other business process change, electronic clearing requires billers to consider the potential operations and customer service impact of implementing the technology, or they might find its benefits to be elusive. That’s according to Lesa Brooks, general manager, Data Capture Services, Western Region for CDS Global (lbrooks@cds-global.com). An early adopter of ECP, CDS Global electronically deposits checks to four major financial institutions on behalf of several dozen lockbox clients, Brooks recently told me.

The first consideration, Brooks said, is ensuring that the biller has the right banking partner. “Billers need to make sure that their bank is experienced with the process,” Brooks said. “Most of the larger banks have teams dedicated to implementing ECP projects. They have the process down pat, and their fees are usually much lower. But we have seen cases where clients have worked with a local bank that is unfamiliar with ECP and it has made the process more confusing. Local banks might also have higher fees since they are working a vacuum.”

And deposit fees are a key consideration, Brooks said. Billers should expect banks to pass along some of the internal cost savings they achieve from electronic clearing. “But fees for ACH conversion, on-us items, check image exchange, and substitute check printing are all over the board, so it’s a good idea to shop around. In general, ECP fees are coming down.”

Billers should also make sure that their lockbox provider is experienced with ECP, Brooks said. Billers need to determine whether their provider allows for the use of multiple banking partners; whether the lockbox provider can handle opt-outs for ACH conversion; and whether the lockbox provider can customize X9 files to allow the deposit record to be marked based on the type of deposit (Check 21, ARC, BOC). “If your lockbox provider isn’t experienced with ECP, and it doesn’t offer flexibility for managing the process, it can add a significant amount of time to development and testing, as well as higher upfront costs,” Brooks said.

Another consideration for billers is whether to use ACH conversion or just Check 21. Depending on the biller’s business, it can be a no-brainer (utilities) or more complicated (non-profits), Brooks said. Once the biller determines it will use ACH conversion, it must consider how to handle customer notification for ARC conversion. Billers must think through what to say (and get the necessary approvals), where to put it, and whether to include a toll-free number for opt-outs. They must also leave time for printing. “Finding the space in customer mailings to put ARC notifications has been the biggest implementation delay, hands down,” Brooks said. Since this notification needs to be made 30 days prior to going live, Brooks said this task should be near the top of a biller’s implementation project list.

Similarly, billers must plan to educate their customer support staff on ECP. “Consumers still have questions about whether their check was cashed,” Brooks said, noting that checks presented via ACH look different on a consumer’s bank statement. “This is an especially big issue for non-profits and direct mail companies.” Customer service reps must understand that converted items might appear in a different location on a consumer’s statement. “We’ve chased our tails researching whether an item was processed, only to discover that the consumer was not looking in the right place on their statement,” she said. As part of their customer service planning, billers should also think through returned item handling.

Have any tips for implementing ECP at the lockbox?

Post your tips below.

BOC Picking Up Momentum

By Mark Brousseau

Although retailers were hesitant to adopt back office conversion (BOC) in its inaugural year, Barry J. Nordstrand (bnordstrand@solutran.com), president and CEO of Solutran, thinks the momentum for BOC is building as retailers are becoming more aware and better educated on the benefits that BOC can provide.

“Approximately 2 percent of US businesses have adopted BOC,” Nordstrand told me, adding that Celent projects the number of businesses utilizing BOC will reach the one million mark by 2009 and 5 million by 2012. “One reason for this projected growth is the fact that general awareness of BOC is increasing in the market.”

As an example, Nordstrand points to a case study recently presented at NACHA’s Payments 2008 conference in Las Vegas. Walgreen’s spoke about its success in implementing a Solutran deferred capture model and discussed its successes thus far. “As additional large retailers continue to deploy BOC as a check conversion alternative, others will be looking to follow,” Nordstrand explained.

“There are many reasons why retailers are considering implementing a BOC solution,” Nordstrand added. “BOC allows retailers to reduce costs without making any changes to the existing POS process. The checkout process is not impacted allowing consumers to get through the lane in an expedited manner. BOC also eliminates the need to provide additional training for a position that experiences high turnover.”

Nordstrand said these are all important issues for large retailers who understand that changes to the checkout process create unnecessary operational risks.

By converting check transactions to ACH debits, retailers are able to reduce their banking fees and processing costs, extend their deposit cutoff time frame, and eliminate trips to the bank while improving speed of returns and funds availability, he added. It also enables them to consolidate their banking relationships and establish a centralized account for checks.

“Having gotten off to a slow start, the increased market awareness and ability for retailers to study the success of early adopters will have BOC rolling in no time,” Nordstrand said.

Check 21 Speed Bumps

By Mark Brousseau

With the banking industry seemingly speeding towards electronic check clearing, it’s easy to forget that there are some speed bumps along the way. I asked Clint Shank (cshank@sortlogic.com), president of Omni-Soft, Inc., the parent company of SortLogic SYSTEMS, what he saw as the biggest obstacles that financial institutions are facing as they migrate to electronic clearing. His response: the fact that paper checks are still being issued, and that most legacy capture systems won’t get replaced anytime soon.

Shank noted that most businesses – and some individuals – would continue to issue paper checks for the foreseeable future, a fact that is backed up by myriad studies. And while printing substitute checks or image replacement documents (IRDs) to process in-clearings is not cost prohibitive, it’s also not cheap. Similarly, Shank believes that most legacy check capture systems still have substantial value on the books, and many financial institutions have a big investment in staff focused on using and maintaining these systems.

“The replacement cost for a system that handles both paper and electronic payments is steep, in terms of dollars, resources and time,” Shank noted. “The cost to upgrade a legacy system to process electronic payments may be more affordable, but nonetheless, is still pretty pricey. Moreover, with the consolidation in the solutions provider market, it is now possible for the unwary to put money in their competitor’s pocket by investing in an upgrade to an existing legacy system,” Shank added.

So Shank believes the real hurtle that financial institutions must overcome is how to protect their investment in their legacy capture system, while still moving toward check truncation. “This is a game played on a knife’s edge, where any miss-step can provide costly,” he said. “Perhaps this is why new services like remote deposit capture and Back Office Capture – which can be added without compromising this delicate balancing act – are so highly favored.”

How are your financial institution’s legacy systems impacting its electronic clearing initiatives? E-mail me at m_brousseau@msn.com.

Could BOC Outpace ARC?

By Mark Brousseau

Back Office Conversion (BOC) has gotten off to a surprisingly slow start since becoming effective earlier this year. Yet respondents to a recent TAWPI Question of the Week were split nearly down the middle on the issue of whether BOC’s growth rate could eclipse that of Accounts Receivable Check (ARC) Conversion. Forty-five percent of the 232 respondents said BOC will outpace ARC, while 44 percent disagreed. Eleven percent of respondents to the question said they didn’t know. Has your organization changed its thinking on BOC? E-mail me at m_brousseau@msn.com.

Business Case for Back Office Conversion (BOC)-Webinar

Thursday, March 15, 2007 (click here to register)
Time: 2:00 – 3:00 pm EST 1:00 – 2:00 pm CST
12:00 – 1:00 pm MST 11:00 am – 12:00 pm PST
FREE Webinar for TAWPI PCC members and Payments in Transition conference attendees!

Beginning March 16, 2007 many retailers and billers will be allowed to convert eligible checks to ACH debits in the back-office. Known as back-office conversion, or BOC, the new rules will enable financial institutions to provide additional value to their customers in a business environment where many checks are still used. Back-office conversion will also allow financial institutions to convert eligible checks received in image files to ACH debits.

This webinar will review:
Rules of the BOC application.
Potential BOC workflow(s).
Benefits and challenges of implementing BOC for RDFI, Receiver, Originator, ODFI.
Customer service training and awareness techniques.

If you are getting ready for BOC implementation, you need to participate in this webinar.

THE SPEAKERS: Kristine Oberg, VP, Product Development Group Manager, U.S. Bank

Amy Gutierrez, VP Strategic Market Development, NOVA Information Systems

WHO SHOULD ATTEND: Business, operations, IT and product strategists responsible for payments and cash management within an organization.