The National Automated Clearing House Association's first Electronic Check Council meeting made a strong case for an electronic check network, but left in question how it would be constructed and who would be the key players.
The gathering was part of an attempt to provide a forum for bankers, insurers, and retailers interested in developing systems that convert checks into electronic payments at the point of sale.
Herdon, Va.-based Nacha believes check truncation at the point of sale can reduce the more than $800 million in fraud-related losses banks suffered last year, while also cutting costs associated with processing the 60 billion checks written each year.
"What was surprising to me was the widespread difference of interests," said Paul Finch, president of the Arizona Clearing House Association. The session took place last month.
Participants addressed a number of electronic check issues, including consumer acceptance of the services and cost justification of the systems' underlying electronic check services.
Ross Davidson, a vice president with United Services Automobile Association, a San Antonio-based insurance and financial services company, said he believes consumers will accept check truncation.
"Credit unions already are not returning checks to the consumer, and they don't seem to have had major problems with it," said Mr. Davidson.
The reason for retailers' presence at the meeting was clear: They bear the brunt of fraud-related losses. Experts believe that annual retail losses from check fraud total in the billions.
Electronic checks can cut fraud and processing costs by getting check information into the hands of clearing and processing banks more quickly. This gives the institutions more time to determine whether a check is good before releasing funds.
However, not all of the meeting's more than 100 attendees were fans of electronic check services. In fact, observers said many check processing specialists attended mainly to keep abreast of developments that may shrink their fiefdoms over the next few years.
Phyllis Meyerson, a principal with the Electronic Check Clearing House Organization, noted such a "large contingent of check people" was as much a sign of uneasiness with attempts to do away with check processors' bread and butter as it was a sign of support for electronic check services.
Among those supporting the emergence of electronic check services were electronic payment systems representatives.
Organizations represented included the Delaware-based Payments Solution Network, a bank-owned group for electronic presentment notification and routing; the New York Clearing House, which operates Checcs, a network for exchanging electronic check data; and the National Clearinghouse Association, a Columbus, Ohio-based alternative to the Federal Reserve's check clearing services.
At least three bank-owned electronic payment groups are vying for prominence in any future electronic check payment mechanism. They are the automated clearing house network, the Payments Solution Network, and Eccho, which establishes rules and formats for electronic check presentment. Each of these intends to be an important player.
For its part, Eccho has already aligned itself with the Financial Services Technology Consortium, a multibank concern aimed at developing electronic check technology. FSTC is led by Citicorp.
MasterCard International, New York, and Visa U.S.A., San Mateo, Calif., are involved in projects as well.
There is likely to be some discussion as to whether the networks operated by the credit card associations or those at the automated clearing house network are best suited to be the main channel for electronic check transactions.
ACH proponents feel that the network has a leg up, given that the ACH already handles similar transactions for a large portion of the banking industry.
Others questioned the use of the automated clearing house network, pointing out there may be cheaper alternatives, such as an interbank net settlement system.
With the number of potential transactions at stake, competition for electronic check dominance may end up being fierce.
One observer, who requested anonymity, lamented the competition, calling this "a good example of the banking industry not working together when you have everybody going off and doing their own thing."
In an attempt to coordinate the banking industry's efforts in electronic check matters, the Federal Reserve has moved to build a national system.
"The Federal Reserve must play a leading role in bringing together all interested parties," said Paul Connolly, first vice president of the Federal Reserve Bank of Boston and director of retail payments.
One Fed move in this direction is the recent streamlining of operational and management structures in its payments services area. Fed officials further said they have ambitious plans regarding electronic checks and electronic check presentment.
Mr. Connolly said the Fed wants to work with others to build the system. He stressed that the Fed does not want to take any of the initiatives on the table out of private-sector hands.
He said the Fed will develop strategic and action plans for future electronic check presentment systems because, "We think we haven't done enough to push real electronic check presentment forward."