Turning checks into ACH files generates billions of transactions every year, but growth rates in some key conversion formats have slowed as consumer payment habits have shifted in favor of electronic payments.
Even accounts receivable conversion, one of the ACH network's biggest success stories, dipped last year as the growth in online bill payment meant there were fewer checks for billers to convert.
All of this has e-payment execs looking at business payments, one of the last bastions of paper. Not only do many companies prefer to cut checks, Nacha's rules explicitly bar banks from turning them into ACH transactions. Businesses have opposed converting their checks to ACH because they say it is easier to track and receive invoice data using paper checks.
"Without moving into that corporate-to-corporate market, there's not a huge growth potential for the conversion" of checks to ACH, said Susan Goold, a vice president and product manager with The Clearing House Payments Co. LLC, which operates one of the two ACH networks (the other is run by the Federal Reserve banks).
Nacha, the Herndon, Va., trade group that oversees the ACH industry, recently surveyed business and banks, asking for suggestions on how to goose check conversion volume using the accounts receivable conversion, back-office conversion and point of payment formats. Though it plans to share the results only with its internal Electronic Check Council, and has no plans to modify its rules regarding business checks, insiders said the issue is a priority.
Chris Huppert, the chairman of Nacha's Council for Electronic Billing and Payment, said there "is an active discussion" about whether Nacha should "allow some small-dollar business checks to be converted to ACH debits."
Billers and merchants have embraced systems that convert consumers' checks into ACH files. But as the rules for these formats were drafted, businesses resisted the idea, largely out of fraud concerns and because they had well-established processes for including invoice data with paper checks.
Convincing businesses to revisit check conversion remains a challenge.
Businesses "are comfortable with the way those paper-based services are working," said Huppert, who is also a senior vice president in the wholesale Internet and treasury solutions group at Wells Fargo & Co. "They may not be aware that some banks have actually stepped up and made the changes that maintain the integrity of those services."
One major concern is how conversion would affect positive pay, a service banks use to match up checks written by business customers with corresponding debit requests from a recipient's bank.
If a business pays a vendor with a check and the vendor converts it to ACH, the business' bank might block the payment per its customer's instruction to prohibit ACH debits against its account.
"There are some, myself included, who think broader business check conversion is really going to be more trouble than it's worth," said Bob Meara, a senior banking analyst with Celent. "A corporation that issues check payments and relies on positive pay as a security mechanism would find that short-circuited, if you will, if those checks were suddenly converted to ACH transactions."
Huppert said that some banks have upgraded their technology to address those problems.
Wells Fargo, for instance, changed the systems that handle ACH transactions and positive pay, so they would communicate with each other.
