By Patti Murphy
To the growing list of organizations seeking a seat at the mobile payments table, add NACHA – The Electronic Payments Association. NACHA released a discussion paper in February 2015 explaining how mobile devices can be used to affect various categories of automated clearing house (ACH) transactions.
The paper, Leveraging the Mobile Channel for ACH Payment Innovation, stated, "With the convergence of consumer and corporate adoption of mobile devices, the new awareness of mobile payments sparked by the introduction of new near field communication-based POS solutions, and the continued evolution and growth of the ACH Network to meet industry needs, it appears the use of mobile devices in ACH transactions is poised to grow dramatically in the next three years.
"The flexibility and versatility of the ACH Network allow for mobile payments to be both debit payments (when an individual or business authorizes a pull of money from the account) and credit payments (when a person or business authorizes a push of funds from the account.) This attribute offers new opportunities for both senders and receivers of mobile payments."
The paper is the work of the Payments Innovation Alliance, a membership group within NACHA. The document noted that mobile devices are being used for both remote and proximity payments that are clearing through the ACH network, and it describes additional applications and benefits, like consumer and corporate bill payments.
NACHA opened up the ACH system to mobile payments officially in 2011. It did this by amending the rules for Internet-initiated ACH payments (known by the ACH designation WEB) to include debit payments initiated and/or authorized via wireless networks. In 2014, approximately 3.6 billion WEB transactions were sent through the ACH, representing nearly 20 percent of all ACH payments, according to NACHA's data. Year-over-year growth in WEB payments stood at nearly 13 percent, NACHA reported.
The ACH was created over 40 years ago as an electronic replacement for the check system, but it has never quite realized that goal. While ACH volume growth plodded along for years (there were just 3.6 billion ACH payments in 1997, for example), check usage surged to an estimated 33 billion in 1997 before beginning a decline. According to the latest Federal Reserve payments study, Americans wrote 21 billion checks and initiated 19.4 billion ACH payments in 2012. (Of the check total, 2.7 billion were converted to electronic payments, under special NACHA rules, and cleared through the ACH.)
As time passed and it became apparent there would be no wholesale replacement of the check system by the ACH, NACHA expanded its focus to include other payment mechanisms, and it began referring to itself as The Electronic Payments Association. In addition to WEB (which was positioned as an alternative to using credit and debit cards online), NACHA created transaction sets for retailers (both back office and POS check conversion) and for billers (replacing both card and check payments). Considered in tandem, these initiatives helped spur ACH adoption, but as the data indicates, the ACH hasn't yet overtaken the check system.
The ACH has failed to overtake checks as a preferred way to make payments for a number of reasons. One is familiarity: everyone is familiar with checks, they have a physical (paper) representation and just about every commercial venue accepts payments by check.
What's more, ACH transactions require more upfront work than do checks. To initiate ACH transactions, for example, a company needs the bank account routing and transit numbers for every customer and trading partner, and must execute test transactions before any real ACH payments can start to flow.
Another reason: the advent of check imaging and remote deposit capture technologies have helped to migrate checks from a lumbering, labor-intensive, fraud prone payment method to one that is cost-effective and less prone to fraud thanks to shortened, automated clearing cycles. In fact, today it is possible to clear and settle check payments on a same-day basis. NACHA has advanced a plan for same-day ACH, but for now, most ACH payments take at least a day to clear and settle. Legal considerations also erect barriers to broader adoption of ACH payments. Checks are governed by the Uniform Commercial Code, a set of model laws that apply to all commercial transactions and are adopted on a state-by-state basis. Any individual or business with a demand deposit (checking) account can make a check payment to any other individual or business (regardless of their banking status).
The same is not true for ACH payments. Businesses must be properly vetted by financial institutions before they start initiating ACH payments; plus there's an authorization process for each party the business plans to pay or collect payments from.
Another hurdle to widespread ACH adoption has been Regulation E, which spells out consumer protections for electronic payments. Among other things, the regulation provides 60 days from receipt of a statement containing an erroneous transaction for consumers to contest those payments. And if the resolution process takes longer than 10 days the complainant is entitled to provisional re-crediting of the disputed amount until the complaint is resolved.
NACHA wants to move the ACH closer to being a real-time payment system, which could eliminate some of these problems. In 2014, it proposed a phased approach to providing same-day settlement for virtually any ACH transaction, and it received 214 responses. The comments suggest support for the plan, except on one issue: pricing.
NACHA wants financial institutions originating customer ACH transactions for same-day settlement to pay an 8.2-cent per transaction fee to the financial institutions receiving the transactions. The Federal Reserve Board, in a letter to NACHA, said it was concerned the fee might "limit the benefits that end users derive" from same-day settlement of ACH items.
The National Association of Convenience Stores was more direct, likening the fee to interchange, and raising the specter of legal action should such a fee plan be adopted. "NACHA should not be striving to replicate the years of litigation and controversy that have surrounded payment card swipe fees," NACS wrote.
Certainly, none of these shortcomings of the ACH alone are deal breakers. But taken together, they seem to make the ACH less likely to be taken seriously as a player in the mobile payments space.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at firstname.lastname@example.org.
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