By Patti Murphy
The Takoma Group
The results are in, and it looks like 2009 was a banner year for the automated clearing house (ACH). NACHA - The Electronic Payments Association reported that the ACH network handled nearly a half billion more payments in 2009 than it did in 2008. Not bad for a down economy, especially since large numbers of ACH transactions are payroll and bill payments.
In all, 18.76 billion government and private-sector payments were processed through the ACH last year, 475 million more than the year before, according to NACHA. That works out to a 2.6 percent year-over-year increase in ACH payments.
NACHA is a private-sector rules group made up of regional ACH associations, banks and network operators. It works in parallel with the Federal Reserve, which has regulatory authority over the ACH (for example, consumer protection rules and monitoring banks for risk.)NACHA said the big growth last year came in the areas of direct deposit, consumer Internet, back-office conversion (BOC), and business-to-business (B2B) payments.
Here's a quick rundown of overall growth trends by transaction type.
The benchmarks that NACHA seems most pleased about are those suggesting that ACH participants are getting better at detecting and thwarting fraud. Unauthorized debits continued a "multiyear downward trajectory" in 2009, NACHA reported. Down 9.6 percent over 2008 loss totals, unauthorized debits accounted for just 0.02 percent of network volume in 2009.
Janet O. Estep, President and Chief Executive Officer of NACHA, pointed to the trend as evidence of the success of rule changes NACHA imposed in 2008, stepping up enforcement and imposing stiff fines on ACH originating institutions with excessive returns.
Maggie Scarborough of the Baltimore-based consultancy FinServ Strategies cautioned against looking at ACH fraud data in isolation, however. She pointed to the rise in new types of fraud, such as browser-based attacks, where fraudsters insert themselves into an online payment session (unbeknownst to either of the other parties), changing payees and siphoning off ACH and wire transfer funds.
"The issue now is increasing fraud and business account takeovers," Scarborough said. "Banks of all sizes are getting hit. You can put all the rules enforcement into this that you want, but until you lockdown the browser, you're going to have trouble. Banks cannot rely on businesses, especially small ones, to ensure a safe computing environment."
This can become an especially serious problem for credit and debit card payments. In a research brief published last year, Erin McCune and Carol Cove Benson of the payment consultancy Glenbrook Partners, reported that "nearly all" small companies interviewed were unaware of the Payment Card Industry (PCI) Data Security Standard (DSS).
Among mid-sized firms accepting card payments there was "little awareness" of PCI DSS, although most expressed concerns about data security, according to their report, "Credit Card Acceptance for B2B Payments."
The B2B market has been and continues to be the toughest sell for electronic payments. And for good reason, some would say.
As a treasury manager pointed out when I first started writing about the business: companies want to collect payments at the speed of light, but would prefer to disburse funds by Pony Express.
Despite significant growth, the overall number of B2B payments formatted as corporate trade exchange (CTX) transactions remains small: 60,322,108 in 2009.
By comparison, accounts receivable conversion (ARC) payments topped 2.4 billion, down 10 percent from 2008 totals. ARC transactions also outstripped BOC transactions by a factor of 15 last year. Yet, at 160 million, there were 2.6 as many BOC (consumer check conversion) transactions as there were CTX (B2B) payments processed through the ACH last year.
BOC is one of four transaction formats used to convert checks to electronic (ACH) payments. However, ACH rules limit the use of these conversion formats to consumer checks. And because the payments are electronic they become subject to Regulation E, which triggers different legal requirements and consumer protections than does check law.
Implementation of the Check 21 Act also has taken momentum away from ACH check conversion.
Check 21 permits banks (and by extension business customers) to truncate checks, creating electronic images of those checks and clearing the images through electronic networks that mimic paper check clearing processes, taking hours instead of days. The law applies to business as well as consumer checks.
In the less than four years since Check 21 took effect, the number of checks truncated and cleared through electronic check networks has more than tripled.
During the first 22 days of December 2009, alone, 1.385 billion checks were truncated and cleared electronically between banks, about 85 million more than the month before, according to the Electronic Check Clearing House Organization. ECCHO is a private-sector rules group and NACHA's counterpart in the check world.
Although ARC transactions are down, year over year, ARC remains a hugely popular ACH application, especially among credit card issuers, utilities and other companies that collect large numbers of consumer bill payments.
The bottom line: taken together, the numbers from NACHA and ECCHO suggest checks written today, by consumers and businesses, rarely remain paper items, and are cleared electronically.
In 2006, Americans wrote about 30 billion checks, according to the Federal Reserve, which is presently collecting fresh data on checks and electronic payments. A report detailing results is due early in 2011.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.
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