With billers looking for ways to convert paper payments into electronic transactions, the accounts receivable conversion process has become one of their favorite tools.
And according to transaction figures released Monday by Nacha, ARC has become the most commonly used electronic check format.
More and more billers are converting paper checks into automated clearing house transactions at the lockbox; the Herndon, Va., clearing house group reported 208.8 million ARC transactions in the second quarter. That figure, up 791% from a year earlier, allowed ARC to leapfrog over the WEB category into the top slot among payments that replace paper checks.
William B. Nelson, an executive vice president at Nacha, called the growth rate stunning. "Billers are starting to embrace" ARC, "especially national billers," he said. "There are a handful of banks that are really selling it to their customers."
The ARC format, formally authorized in March 2002, is the fastest-growing payment type in Nacha's history, he said. It was initially embraced by credit card issuers and utilities, companies that receive a high volume of paper checks every month.
At its current pace, ARC volume could reach 1 billion transactions this year, Mr. Nelson predicted. By comparison, it took 15 years for direct deposit - the original consumer-oriented ACH transaction - to break the billion-payment level.
"Until ARC came along, WEB was the fastest growing application in history," he said. The latest figures show WEB - which is used primarily for bill payment - posting a respectable 39% growth, to 170.4 million payments in the second quarter.
Nacha monitors five types of e-check applications: ARC, WEB, TEL (phone-initiated transactions), POP (point-of-purchase payments), and RCK (used for returned checks). Together they made up 21.2% of the 2.23 billion ACH transactions recorded in the second quarter. Financial institutions originated 1.99 billion ACH payments, up 23.6% from a year earlier, with the remainder originated by the federal government.
These figures do not include on-us payments, in which the same bank is the sender and the receiver. Nor do the e-check numbers include direct deposit or pre-authorized payments, such as mortgage debits.
Alan Koenigsberg, a vice president and the global ACH senior product manager at J.P. Morgan Chase & Co., the nation's largest ACH originator, expects ARC usage to continue to grow.
JPMorgan Chase was already the nation's largest ACH originator before its July 1 acquisition of the No. 2 originator, Bank One Corp. He would not disclose his company's ACH volumes, but he said there has been strong interest among retailers, especially those that run their own private-label card operations, as well as mortgage servicers, telecommunications companies, and energy providers.
Now JPMorgan Chase is expanding from large billers into the middle market, Mr. Koenigsberg said. "Smaller billers are beginning to see the benefits of ARC. Those are really taking off. The growth has been enormous."
New opportunities will arise as payment systems continues to evolve, he said. The Check Clearing for the 21st Century Act, which will take effect in October, is expected to provide another way to convert paper checks into electronic transactions and accelerate the payment process. JPMorgan Chase is developing multichannel products that will incorporate both ARC and Check 21 applications, he said.
Beth Robertson, a senior analyst at TowerGroup, a Needham, Mass., market research unit of MasterCard International, said the massive growth in ARC volume is biller-driven. When large billers adopt ARC, "they're immediately converting millions of items per month," she said. "It's not a one-off, like a consumer adopting direct deposit."
ARC is appealing to billers, because the items clear faster than paper checks, and return items are also processed faster, Ms. Robertson said. A bounced paper check typically takes seven days to process, compared to the two-day period for a bounced electronic transaction.
"If you are a biller that closely manages your consumer risk, you have the ability to manage that more closely," she said.
John E. Lucas, a first vice president at Mellon Financial Corp. in Pittsburgh and the product line manager for Mellon Global Cash Management's electronic services, also predicted that ARC volume would reach 1 billion transactions this year and that the rapid growth could continue for 12 to 18 months before slowing.
Mellon, which operates six retail lockbox centers around the country, has been promoting ARC to its corporate clients that send bills to consumers.
"We've seen a tremendous amount of growth in ARC," with 25% of its retail check payments already being converted to ACH, and more companies adopting it, said Mr. Lucas, who was recently elected the vice chairman of Nacha's electronic check council, which sets the rules for the category code. "There are still quite a few billers ramping up with ARC."
Growth will continue as conservative corporate treasurers become more comfortable with the idea of converting checks to electronic payments, he said. "They didn't want to be on the leading edge. But as more and more big-name companies embrace the concept, others in the same industry type become more comfortable with the concept as a whole."
