The Green Sheet Online Edition
December 22, 2008 • Issue 08:12:02
ACH evolving and prospering
A Mercator Advisory Group report said new payment network rules and business models have brought about significant changes in the nature and volume of automated clearing house (ACH) activity. The ACH began in 1972 as a collaboration between Calwestern ACH Association and the Federal Reserve Bank of San Francisco. It was a low-volume network transmitting large, recurring transactions. In 2007, more than 18 billion ACH payments were made, representing a 12.6 percent increase from the total number of transactions generated in 2006.
Mercator noted that much of the growth in ACH volume can be attributed to a high-volume platform of relatively low-value, nonrecurring transactions originating from a rapidly expanding number of merchants, aggregators, corporations and financial institutions.
Methods on the move
The report projected that within the next five years, 35 percent of payments made online will come in the form of alternative payments, including prepaid cards, new forms of credit and programs leveraging the ACH. And as more alternative payment schemes leverage the network, ACH continues to show solid growth and transaction volume. Alternative payment providers like Google Checkout, Bill Me Later and PayPal Inc. use the ACH to provide consumers and merchants with a secure and efficient means of payment. In doing so, all are experiencing phenomenal growth.
"As alternative payment methods continue to evolve and more players step into the space, the use of traditional payment cards for online transactions will continue to decrease," said Brent Watters, Senior Analyst, Mercator Prepaid Advisory Service.
Secure Vault Payment (SVP), a new e-commerce payment solution introduced by NACHA - The Electronic Payments Association could, according to Mercator, level the playing field for banks to compete against alternative payment providers and push the ACH network in a new direction. Additionally, the ACH's eCheck services continue to fuel the network's transaction volume and penetrate markets currently targeted by debit and credit cards.
SVP enables customers to move payments from their direct deposit accounts to merchants and service providers in real-time from consumers' bank Web sites. This "push" method ensures merchants and ISOs that these payments are being processed, thus reducing concerns about fraud, chargebacks and insufficient funds.
"The ACH is moving to push versus pull method of payment, thus creating direct competition for EFT [electronic funds transfer] networks that have been eager to develop a PIN-less debit solution for online transactions," Watters said. "It is foreseeable that merchants will increasingly promote alternative payments; consequently, consumers will become more accepting of new payment types."
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