The Green Sheet Online Edition
June 23, 2008 • Issue 08:06:02
Insider's report on payments
Honoring early mavericks
I've been working in the payments space for more than 30 years. Gulp. As hard as that might be to accept, it was more of a jolt to realize recently that many respected colleagues - folks who taught me much of what I know about this business - are retiring.
People like Pete Yeatrakas, President emeritus of Western Payments Alliance (WesPay). Newly retired, he was honored recently by NACHA - The Electronic Payments Association with its Payments Systems Lifetime Achievement Award.
When I met Yeatrakas in the mid-1980s, he was Executive Director of a maverick automated clearing house (ACH) association (the first-ever regional ACH) that eventually morphed into WesPay, based in California.
At the time, WesPay (at the direction of its board of directors) was building a private sector alternative to the Federal Reserve, which handled ACH processing for the majority of financial institutions.
(Prior to being an ACH association executive, Yeatrakas worked at the Federal Reserve Bank of San Francisco, which had been instrumental in creating the ACH network.)
The initiative spurred competition and innovation. Processing costs today are a fraction of what they were in the late 1980s, and the ACH, which had been a cumbersome, semi-electronic mechanism, is now a truly electronic payment system.
The association worked with two private sector partners in creating an alternative to the Fed's ACH processing services. The first was a unit of General Electric Co. Subsequently, Visa U.S.A. (now Visa Inc.) took over the contract.
Now WesPay banks can use the Electronic Payments Network, a unit of New York-based SVPCO and the largest private sector alternative to the Fed's ACH network.
NACHA's outgoing Chief Executive Officer, Elliott McEntee, described Yeatrakas as a visionary. "Pete has been a true industry leader, instrumental in developing some of the key initiatives that made the ACH what is it today," McEntee said when presenting the award.
I contacted Yeatrakas to see how he was enjoying retirement. True to form, he talked up the ACH, boasting about how he had just received notice of the first direct deposit of his Social Security check.
"I have been getting direct deposit continuously since I began work at the Fed in September 1974," he wrote in an e-mail. "Wonder if anyone else has been as fortunate?"
NACHA chief hands off network
McEntee is retiring from NACHA at the end of the year. His replacement, Janet Estep, a former U.S. Bank executive, was introduced during Payments 2008, NACHA's annual conference. Estep is now NACHA's President and Chief Operating Officer; McEntee retains the CEO title until his retirement in December.
He was hired by NACHA after a successful career with the Fed, where he had directed key payment systems initiatives, including introduction of Fed priced services and the migration of the ACH to an all-electronic payment mechanism. And he has clearly left his mark.
When McEntee joined NACHA 20 years ago, the network was reporting annual transaction volumes in the millions. Last year more than 18 billion payments were processed through the ACH.
"ACH volume continues to double every five years with increases experienced across all transaction categories," McEntee reported at the start of Payments 2008.
Some of the largest increases have been seen in consumer payment applications. NACHA figures more than 8.5 billion consumer bills were paid through the ACH last year, including pre-authorized debits, Internet- and telephone-initiated payments, and checks converted to ACH payments.
Internet payments (Web transactions in ACH lingo) grew by 26 percent and totaled 2.3 billion last year, NACHA reported, adding that about 85 percent of those were to pay bills online at a biller or bill-payment Web site.
Another big winner was accounts receivable entries - the transaction format used for converting consumer remittance checks to ACH payments - which accounted for 33 percent of the growth in transactions initiated by financial institutions in 2007. Consumer checks converted to ACH payments at the POS totaled 462.7 billion last year, according to NACHA's tallies. And the newest check conversion format (BOC, for back office conversion) charted 4.1 million transactions in 2007, the first year it was available.
Checks versus ACH
Many industry professionals think ACH check conversion applications have limited uses as banks focus more attention on "electronifying" checks - the process by which checks are scanned, be it at the POS or in some back office environment, and then cleared through electronic networks that mimic the traditional land- and air-based check clearing networks.
There are clear advantages: faster settlement, for example, and no restraints on what types of checks are covered. (ACH rules limit check conversion to payments drawn on consumer accounts; check law has no such restrictions.)
Which brings me to another retiring old-timer: Jerry Milano. He retired March 31 as head of check services at SVPCO and was instrumental in promoting electronic check imaging and clearing.
As Director of Payment Systems at the American Bankers Association in the 1970s, he spearheaded research into digital image-based check truncation.
When I first met Milano, he was President of the Chicago Clearing House, a large regional check clearing house which, like its peers, was pitted against the Fed (often represented by McEntee) over changes in check presentment policies. Milano is one of the most intelligent people I've met in this business, and in those early years he taught me much of what I came to understand about some of the thorniest topics, including check presentment and payments industry risks.
After Chicago, Milano moved to "the Left Coast," as he liked to describe it, and eventually came to lead WesPay, leaving there for The Clearing House in New York, the oldest clearing house in the nation and parent of SVPCO.
While at WesPay (and earlier the California Bankers Clearing House) he was instrumental in promoting electronic check imaging and presentment initiatives. Today, SVPCO operates the largest electronic check clearing mechanism in the nation. Last year, the network was used to clear 2.8 billion imaged checks valued in excess of $5 trillion.
To be sure, there's a lot of work to be done before we, as a nation, come close to eliminating paper checks, but thanks to the careers of people like Pete Yeatrakas, Elliott McEntee and Jerry Milano, the path has been laid. Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at firstname.lastname@example.org.
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