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Paper (Check) Trail Takes Electronic Twist

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Gerard Milano, President and CEO, Western Payments Alliance, says, "The more the public accepts electronic check conversion, the better it is for POS truncation. Therefore, bill paying through ACH will help to increase the public's comfort level with check conversion at the POS."

Long-awaited rules that enable financial institutions to turn paper checks into electronic debits for millions of re-occurring consumer payments took effect on March 15, and the changes may presage some of the most significant impacts to the nation's Automated Clearing House in recent years.

The new rules are designed to promote Accounts Receivable Check Conversion, which permits financial institutions to convert paper checks for utility, phone and other re-occurring bills into electronic debits that can flow through the ACH at a fraction of the cost. An ACH debit can be processed for as little as 25 cents to 35 cents per item, compared to $1 to $1.50 per check received at lockbox locations.

Checks sent to lockbox locations account for almost one quarter of the approximately 50 billion checks written annually by U.S. consumers. As a result, Accounts Receivable Check Conversion - and the new rules supporting it - represents one of the biggest opportunities to eliminate paper checks from the nation's financial system.

"The new NACHA rules authorizing Accounts Receivable Check Conversion are a big breakthrough because they give financial institutions the ability to significantly reduce processing costs by transforming paper checks into electronic debits at lockbox locations," said Gerard F. Milano, President and CEO of the Western Payments Alliance. "WesPay is urging members to take advantage of this opportunity but also realize the significant work involved in modifying existing processing procedures and in informing consumers about the changes likely to come."

The new rules allow financial institutions to provide electronic descriptions of paper checks and eliminate the requirement of returning original checks to consumers. Customers whose banks implement Accounts Receivable Check technology also will have more information about each check on their bank statement, including to whom the check was written.

The Western Payments Alliance, one of the nation's largest payments organizations with more than 1,000 financial institutions in the western U.S. and Pacific region, has been working cooperatively with members, NACHA and other regional payments organizations to manage the issues arising from the rules changes.

WesPay already has held a series of workshops and has others planned in coming months. Additionally, WesPay will continue to issue rules bulletins to help members implement or interpret rules changes. A Process In Transition Companies that receive regular payments for phone, energy, garbage collection, television or other services receive payments at sites known as lockbox or dropbox locations. Typically, companies will open the envelope containing the invoice and check, encode the paper draft with payment information, and then send the check to a receiving financial institution. Companies usually receive payment in one to two business days from the mailing date, depending on the geographic location.

Accounts Receivable Check Conversion enables financial institutions to dispense with the physical movement of checks from the lockbox location.

Under the new NACHA operating rules, companies can create electronic payments at the lockbox location, transmit them through the ACH network and then dispose of the paper check. As a result, financial institutions have the opportunity to send a description of the payment instead of the original draft.

"Accounts Receivable Check Conversion is another key step in reducing the growing number of checks in the U.S.," Milano said. "By killing a check at the lockbox location and turning it into an electronic debit, we're leveraging the ACH, lowering costs for financial institutions and providing consumers with better information to manage their finances." About WesPay The Western Payments Alliance serves as a cooperative, non-profit organization enabling member financial institutions to efficiently process paper-based and electronic financial transactions. Each day, WesPay collects and clears more than seven million checks totaling $7 billion.

As a NACHA member, the Western Payments Alliance also acts as the rulemaking authority governing member transactions flowing through the Automated Clearing House (ACH) network.

For more information, call 415-433-1230, visit www.wespay.org or contact Greg Berardi, Western Payments Alliance, at 415-566-6277 or greg@bluemarlinpartners.com.