Understandably for an accomplishment that took three years of hard work, the National Automated Clearing House Association celebrated last month with some fanfare the adoption of a rule for using its network to collect returned checks.

It made a lot of sense to streamline that troublesome process electronically. It made so much sense that some 2,500 merchants began using the ACH network for bad checks even before getting the protections and warrants that Nacha rules afford.

The bad news was that the process took three years-long enough to expose a lot of shortcomings in the banking industry's stewardship of the payment systems.

Even with the "top of mind" attention that the automated clearing house and other funds transfer mechanisms are getting from high-level organizations like the Banking Industry Technology Secretariat, banking is still fragmented on the operational level.

Some frustrated executives are speaking out about the "silo mentality" that works against a more unified approach to payment system policy. They say consistency and unification will be essential if the banking industry is to retain its central clearing role as Internet commerce takes off.

"Efforts on the proposal to create a returned check capability were less than heartening," said Lori Hricik, senior vice president, Chase Manhattan Corp.

She said it would be embarrassing to point to the Nacha rulemaking as cause for saying, "We've got our act together."

Thomas W. Kuder, executive vice president of Trisense Software Ltd., a Minneapolis company that sells bill payment software to banks, said he has experienced the "silo" problem firsthand.

Trisense was about to close a sale with the commercial side of a major Midwest bank, Mr. Kuder recalled. But the deal-and all the due diligence that had gone into it-went by the boards when the retail side of the house signed a contract with another vendor.

"The retail and commercial sides of the bank did not talk to one another," Mr. Kuder said.

Ms. Hricik said it is critical that banks get their collective house in order, and a starting point may be a convergence, or at least a better coordination, of trade associations.

Some observers said one reason the check-return rulemaking took so long was the conflicting guidance Nacha got from various constituencies-check processors, customer service providers, lawyers-sometimes from the same bank.

One observer, who asked not to be identified by name, suggested there are two ways of pursuing a solution:

"Can you do it with these outside organizations, which is what the industry is attempting to do with BITS (the Banking Industry Technology Secretariat, a division of the Bankers Roundtable that has support from the American Bankers Association and Independent Bankers Association of America), or does each individual organization have to solve its silo problem first?

"I think the thing is to go to the banks," the source continued. "They are the ones paying for it all."

And they would then have to make some sense out of the many associations, networks, and interest groups that are at least peripherally involved in payments, technologies, and related standards-setting.

In addition to BITS and Nacha, itself an association of dozens of regional ACH entities, there is the Electronic Check Clearing House Organization, or Eccho; the National Clearinghouse Association, or NCHA; the New York Clearing House Association and other big check clearing houses; and the Financial Services Technology Consortium.

There are scores more: regional check clearing houses, credit card associations, automated teller machine and debit card networks, special- purpose lobbying groups like the Electronic Funds Transfer Association, a banking industry club for electronic data interchange called EDI Bank Alliance Network Exchange, the U.S. Council on International Banking, the Online Banking Association, and special-purpose efforts such as the ABA's check fraud task force and another ABA initiative to act as a certificate authority in on-line commerce.

"I can assure you our collective intent is for the good of the industry, but have we properly harmonized the respective visions of our initiatives?" Ms. Hricik asked.

"Shouldn't we have one vision for the low-value payments industry? Have we synchronized our efforts to ensure they are complementary and not in conflict or overlap?"

To bankers like Nick Alex, senior vice president at NationsBank Corp., such uncertainty only dilutes what could be a potent asset of the banking industry: the ability to innovate.

He said he cannot deploy enough people to participate in all the organizations that represent "every flavor" of payment types.

"We have too many payment organizations," he maintained. "I do believe there is a need to collapse and concentrate our efforts."

BITS, which has the chairman or president of 11 of the largest U.S. banking companies on its board of directors, has begun to concentrate minds on the fragmentation issue, said Phyllis Meyerson, a consultant at Eccho in Dallas.

But she also expressed concern that too much convergence could cause a loss of focus on critical or strategic issues.

James Graham, executive vice president of PNC Bank Corp., said he has taken an interest in the subject and noted a behind-the-scenes dialogue between the National Clearinghouse Association and Eccho.

The intent is to boost participation in the latter's electronic check presentment program. He said the resource requirement to become ECP-enabled in Eccho's system has hindered smaller banks' participation and that perhaps National Clearinghouse can help.

"If you fast-forward three to five years, maybe those two associations can somehow figure out how one of them doesn't need to exist any longer," Mr. Graham said.

"I think both those associations, if they saw that as the light at the end of the tunnel, would come to that conclusion before their memberships forced them to."

Ms. Hricik at Chase said Nacha is one group that could step forward and take a leadership role. It has a rulemaking track record, clout with the Federal Reserve System, and members or participants that span the entire depository industry, from credit unions to money-center banks.

But Nacha's diverse membership could present the "lowest common denominator" problem. If the association tries to satisfy everybody, it could lose a competitive edge.

Austin Adams, executive vice president of First Union Corp. and co- chairman of the industry review committee of the BITS advisory board, said he and C. Webb Edwards, chief information officer at Norwest Corp., will make a presentation this week at the BITS annual board meeting on these very issues.

BITS was formed in 1996 to raise awareness and focus discussions of payment issues among senior-level bankers. It was not lost on people in the wholesale payment trenches that BITS came along at a time when Nacha and Eccho were vying with each other to provide settlement services for the Financial Services Technology Consortium's Internet-based electronic check- yet all three groups essentially comprised the same banks.

Mr. Adams said trade groups should welcome a stronger guiding hand from their members. He said much of the fragmentation is an "understandable" result of the industry's structural heritage.

"What is unforgivable is if we do not address it," he added.

Mr. Adams did not want to discuss any specific recommendations his committee would make, but he said BITS has "the critical mass, the skill set, and potentially the energy to lead the banks toward a more effective, cost-efficient structure."

William Randle, executive vice president of Huntington Bancshares, Columbus, Ohio, and a member of the BITS advisory group, said it is imperative that the industry seek appropriate, collective ways to eliminate redundancies while making sure individual institutions "can still be very competitive with one another."

Banks must "deliver what the customer wants," he added. "If we don't do it someone else will."

Richard Burke, administrator of the National Clearinghouse, agreed it is time to attack those silos.

"I think absolutely there is benefit for conversations to continue, particularly where there is common membership," he said. But "I don't know what the right outcome at this point in time is according to my membership."

In a recent response to the Federal Reserve's Rivlin report-an initiative spearheaded by Fed Vice Chairman Alice Rivlin to assess the central bank's role in retail payments-Richard Poje of Treasury Strategies Inc. wrote, "No single bank nor consortium of banks has resources sufficient to tackle the mystifyingly complex tangle of laws, regulations, and customs that govern payment systems operations."

When asked if he could name a leader or leaders in the payments business, he said, "No, there are none."

"I think what really matters is that someone has to take charge," he said. "Banks are feeling the chill winds on their necks."

Mr. Poje said the Federal Reserve, with its dominant market share in payments, should step up and lead-which might not please BITS-class bankers. "Banks would still own the customers," Mr. Poje said as reassurance.

The Chicago-based consultant cited the years of struggle, still in many ways continuing, to build significant ACH and electronic data interchange volumes. "The payment systems have been rudderless for as long as anyone can remember," he said.

"There is no one leader in the industry, nor should there be," Mr. Burke said. "The Fed plays an important role, but they do not have direct consumer contact," which he called a "very valuable missing piece."

Elliott McEntee, president and chief executive officer of Nacha, injected a positive note. Although the check-return rule "should not have taken three years," he said, several efforts lately with the Fed and Eccho are serving as models for future collaborative efforts that are likely to become commonplace.

"Although it took a considerable amount of time to develop the operating rules to support this product," he said, "it is an example of where the electronic payment and check areas have worked closely together."

Harold Piotrowski, manager of retail operations at Charter One Bank, Cleveland, and chairman of Nacha, said, "In the consumer's mind, a payment is a payment is a payment."

"Various associations and networks cropped up from these needs," he said. "The marketplace will dictate which organizations survive."

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