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The Green Sheet Online Edition

May 29, 2007 • Issue 07:05:02

Payments: A very large space

By Patti Murphy
The Takoma Group

What a difference 20 years can make, especially in the payments space. This is what ran through my head as I toured a packed exposition hall at Payments 2007, which took place April 15 to 18 in Chicago.

The event is the annual conference of NACHA — The Electronic Payments Association. NACHA is responsible for the national automated clearing house (ACH) network's rules and policies.

Two decades ago, NACHA held its first "expo." The group (which began as a unit of the American Bankers Association) had been holding conferences for about 10 years. But there really weren't enough vendors of ACH systems and services to fill an expo hall until the mid-1980s.

The first expo was in a modest hotel ballroom. The ACH was nascent then, and only a handful of vendors with tabletop displays were in attendance — along with a few members of the press and several hundred banking and ACH executives.

At the time, NACHA was focused on moving more corporate payments to the ACH. Direct deposit of payroll was beginning to catch on. However, with the exception of government vendor payments, few businesses were initiating or receiving large-dollar payments via the ACH.

Fast forward to Payments 2007. The exhibit hall was so big that attendees (about 2,800 by NACHA's count) were overheard throughout the event grousing about difficulties navigating the space. But even more striking was the extent to which the gathering attracted vendors and speakers in the retail payments industry.

The exhibit hall was brimming with companies that specialized in card, check and online bill pay services. The opening session featured Peter Kight, Chairman and Chief Executive Officer of CheckFree Corp., and James Van Dyke, President and founder of Javelin Strategy & Research.

Van Dyke presented a white paper on trends in payments that included insights and charts on topics like "How merchants' current payment profitability affects interest in new technology." Kight talked a lot about "convergence" of the check and ACH systems.

Green is not just the color of money

Van Dyke also proffered a new argument for electronic payments: It's good for the environment. He proposed that "going green" was mainstream, and that what used to be "doing the right thing" is now also "good for the bottom line."

"Green matters," Steve Ellis told the group as he took the podium. Ellis is Executive Vice President at San Francisco-based Wells Fargo & Co. and Chairman of NACHA.

Now, had someone suggested during the NACHA conference 20 years ago that eventually banks would play the environmental card to get Americans to kick their cash and check habits, I would have scoffed. But times have changed.

During the conference, the folks at Electronic Payments Network, the private-sector ACH network operated by The Clearing House in New York, showed me data on savings and benefits to the environment a West Coast utility was able to identify from customer adoption of electronic bill pay.

For every 38,000 bills paid electronically the company estimated that:

  • One ton of paper is saved.
  • Two tons of trees are preserved.
  • 16,450 gallons of water are saved.
  • 1,941 pounds of solid waste are avoided.
  • 5,058 pounds of greenhouse gases are avoided.

A study by Van Dyke (Why Electronic Billing and Banking Is Good for the Nation's Environmental Health) offers a host of other data on the societal cost of check payments, noted Rossana Salaris, EPN Senior Vice President.

The report includes calculations suggesting that if all U.S. households paid bills online it would:

  • Save 18.5 million trees a year, or enough lumber to build 216,054 single-family homes
  • Save more than 15.8 billion gallons of wastewater every year, an amount greater than what is generated by the city of Fresno, Calif.
  • Save more than 29 trillion British thermal units (BTUs), which is more than enough energy to run the city of Jacksonville, Fla., for a year
  • Reduce toxic air pollutants by 2.2 billion tons of CO2 equivalents, which is akin to having 390,326 fewer cars on the road
  • Reduce by 1.7 billion the yearly production of solid waste, an amount equal to raw tonnage generated by the city of Detroit over the course of a year.

Turning checks into ACH EFTs

A well-attended group of sessions at Payments 2007 was on electronic checks - a process by which merchants and other businesses truncate consumer checks and convert the payments to ACH debits.

Another popular stream of sessions focused on card solutions. Only one of the five conference session streams addressed corporate payments exclusively. What a difference 20 years can make.

Check conversion has plenty of traction in the push to convert checks to EFTs. According to NACHA research:

  • Nearly one in five of all transactions that cleared through the ACH last year were checks converted to ACH debits.
  • Nearly 16 billion transactions were processed through the ACH last year, which was a 14.5% increase over 2005 traffic. Over 3 billion of those transactions began as consumer checks.
  • The largest category of ACH check conversion transactions last year were consumer bill payments (accounts receivables, or ARC), which totaled 2.8 billion.
  • Business-to-business ACH payments last year were up 10.9% and totaled 2.3 billion.

Most experts agree that an ACH check conversion format that became available in March (known as back-office conversion, or BOC) will eventually prevail as the preferred method of eliminating POS check hassles, especially when used in tandem with electronic check presentment services.

In these situations, checks effectively become single-use debit cards; merchants scan checks at their checkouts and/or backrooms and let processors decide which channel to clear them through.

It's great to see the ACH chipping away at the mountain of checks in consumer-to-business payments. And it's great that groups like NACHA want to promote environmental causes.

But I'm not entirely certain where credit cards fit in with the ACH, except, perhaps, to prod banks to action lest they lose their hold on the retail payments franchise.

That was one of the messages I took away. Pointing out how many nonbanks are involved in mobile payment projects, consultant Richard Crone warned the bankers in attendance at one session: "The one who enrolls is the one who controls" how customers activate payments, where they are processed and what it costs. ##body The Green Sheet, Inc.

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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