A long-planned payments pilot program allowing banks to convert low-value checks to automated clearing house transactions is moving forward, but some industry experts say the initiative may be past its prime.
Nacha, the Herndon, Va., electronic payments association, said Tuesday that its Deposited Check Truncation program has kicked off with six community banks. The program lets banks settle consumer checks worth up $50 and over the ACH network. Participating banks can choose to raise the limit to $250.
"Financial institutions are really looking, in the case of low-value checks, how to get them through the system as quickly and efficiently as possible," Janet Estep, Nacha's president and chief executive, said in an interview Tuesday. The system is based on the existing truncated check, or TRC, standard entry class code.
The pilot program has been in discussion at Nacha since around 2006, when a group of several large banks and other payments organizations known as the Check ACH Coalition studied the concept. Attempts to organize a pilot between 2006 and 2008 failed over concerns about marrying check and ACH rules.
"It didn't make sense then," said George Thomas, a principal with Radix Consulting. "It makes less sense today."
"If you could exchange images, why would you want to convert it to an ACH?" he added.
Nancy Atkinson, a senior analyst for wholesale banking at Aite Group LLC, said she doubts many big banks will use the system but it could help small ones that lack scanning gear at some branches.
Estep emphasized that the program is not intended to supplant check image exchange, but can lower banks' check processing costs. Nacha estimates that collecting banks save 7 cents per item compared with other paper and image clearing alternatives.
Bob Steen, the chief executive of one of the participants in the program, Bridge Community Bank in Mechanicsville, Iowa, estimates that half the checks its customers deposit are eligible for truncation (business and third-party checks are not eligible).
"It's a volume-driven deal," Steen said. "The question is, does the industry engage in this for the savings? I think it's an easy decision."
