Corporations objected in 2001 when banks began working on rules for converting check payments to automated clearing house transactions, fearing that they would lose the ability to fight fraud by matching incoming debits against the check-issue files they give their banks.
With retail check conversion now widely implemented - so much so that it shows signs of plateauing after three years of rapid growth - the software vendor CheckFree Corp. says it has built a product that deals with the concerns, by reconciling incoming ACH charges against the checks that companies originally issued.
CheckFree announced the product, e-Check Bridge, on Monday at the Nacha Payments 2005 conference in San Antonio. It said Wachovia Corp. was its first customer, and it is expected to announce First Horizon National Corp. as a customer today.
In the short term, e-Check Bridge will automate the processing of business checks that are inadvertently converted under the existing rules for accounts receivable conversion. But bankers who talked about the product clearly hope that CheckFree's clout will help break the logjam that has prevented corporate-check conversion.
Suzy L. Yoder, a senior vice president in Wachovia's treasury services product group, said the question is when - rather than whether - business checks can be converted.
The move to e-Check Bridge is positioning her company "so that when the regulations change and corporate checks can be converted, then Wachovia will be able to handle" those transactions, Ms. Yoder said.
How corporate check-writers will respond remains an open question.
The Association for Financial Professionals, in Bethesda, Md., has strongly opposed business-check ARC. Officials at the group of corporate treasury executives could not be reached for comment Monday.
Nacha spokesman Michael Herd said it has been researching the matter. "We know that some business checks are being converted," he said.
The electronic payments association reported Monday that ARC transactions rose 479% last year, to about 1.27 billion.
One observer said CheckFree's strong market position could make its software crucial in shifting the debate.
"This is the missing link," said Susan Feinberg, a senior analyst in the wholesale banking group of TowerGroup of Needham, Mass., a research unit of MasterCard International. "I think they are in a unique position … because of their strength in both the reconciliation and the ACH market," she said in an interview.
CheckFree said that 17 of the nation's top 20 banks use its ARP/SMS software for account reconciliation but that just 34 of the top 50 use its PEP+ software for ACH payment processing. As its name suggests, e-Check Bridge acts as a connection between the two.
Ms. Feinberg said the new product does not solve the whole problem, though. "It would be nice if they would make this available to their customers that don't use PEP+," she said.
Many of the nation's largest banks use in-house systems for ACH processing, and attempts have been made to address business-check conversion.
National City Corp. has been using a homegrown system to reconcile ACH charges to its business-check accounting.
Mary Ann Francis, a senior vice president and National City's manager of global trade and treasury solutions, said the Cleveland banking company has been using in-house software since October to flag business and consumer checks that are converted to ACH.
"Consumers don't have the complex systems, but they have the same needs" - to determine what happened to their checks, Ms. Francis said. From a customer's perspective, consumer or corporate, a check "just disappears," she said. "We've been able to find it for them."
National City's system can recognize incoming ACH transactions as converted checks. Payments presented on a business account can be reviewed for controlled disbursement, account reconciliation, positive pay, and stop payments.
Despite the assertion that accidental conversions are rare, National City has found them common.
"We have thousands a day - and that is just on the corporate side," Ms. Francis said.
Cathy Moerchen, a product strategist in CheckFree's software division, said that even in the absence of a Nacha rule change the Atlanta company's new product fills an important need.
"ARC is growing at triple-digit rates, which exacerbates the problem" of reconciling corporate accounts," Ms. Moerchen said. "With ARC continuing to grow, there's the possibility that the problem will continue to grow as well."
