Someday, the automated clearing house network might be used to transmit files with just information instead of payments.
The network might also move closer to real-time settlement, or permit merchants to convert checks into ACH transactions in their back offices.
These are some of the ideas on the table as Nacha, the organization that oversees the ACH system, starts work its latest multi-year strategic plan. The goals include a mix of new proposals and items that have long been on its list of potential action items.
Nacha drafts a new plan every four years. Past efforts have yielded some home runs, such as the accounts receivable process. Prescient but perhaps less successful was its 2001 plan that identified risk managament as an important goal before online fraud rates began to climb.
"The strategic plan does lead to major changes in the ACH network," said Nacha president and chief executive Elliott C. McEntee, who moderated a panel discussion Tuesday at the group's Payments 2005 conference here.
Nacha's chairman, Steve M. Ellis, an executive vice president with Wells Fargo & Co., said the latest road map will have to guide it through what is certain to be a dynamic period.
"We are changing our behavior, and a lot of our payments tools were designed in the past," Mr. Ellis said. "This plan is important."
Mr. McEntee, Mr. Ellis, and three other Nacha executives described how this self-scrutiny process works and shared some of their thoughts about how the ACH system might evolve.
Three task forces have been formed. One focuses on Nacha's needs as a lobbying organization and rulemaking body, the second studies risk management issues, and the third has the task of determining what changes, if any, the network and the payments process need.
The three groups will meet through the spring and summer, and the Nacha board hopes to approve the strategic plan at its August meeting, according to Richard W. Burke Jr., a senior vice president with Commerce Bancorp Inc. of Cherry Hill, N.J., and Nacha's vice chairman, who is overseeing the process.
Mary Ann Francis, a senior vice president with National City Corp. of Cleveland, and a Nacha board member, heads the team studying network issues. She rattled off a laundry list of issues under consideration, including:
- Updating parts of the network's aging infrastructure.
- Creating a rule to permit merchants to convert checks into ACH payments in their back offices. This could pose a direct threat to the growing market for banks' image-based remote capture services.
- Allowing banks to convert business checks into ACH payments at the lockbox.
- Promoting a credit push system, now being tested, that would make online purchases more secure by linking retailer Web sites to banks' sites and allowing people to pay by initiating a credit, as they do with payments to billers. Consumers currently can make ACH payments online by giving their bank account information to the merchant and authorizing it to debit their account, but some say they are wary of revealing this information on the Internet.
- Same-day settlement for ACH payments.
- Pursuing agreements to create a global ACH network. The Federal Reserve already has such agreements with Canada, Mexico, and five European countries, though Ms. Francis said that the European Union is focused on linking all of its members' payment systems and thus may have little energy for working with the United States as well.
- Using the ACH network to transmit "nondollar" files, that carry just information and have a zero in the value field. Since consumers already use the ACH network for online bill payments, one potential application for nondollar files is delivering electronic invoices.
Ms. Francis said the ACH system's managers should not try to replicate existing payment systems.Nacha could attempt to emulate some of the features that make other payment systems appealing - such as the faster settlement available with wire transfers, or the more stringent authorization process used for credit cards - Ms. Francis said. But each payment system has unique strengths that make them appropriate for different types of transactions, she said.
"It's not about competition; it's about deciding how do we move money and what is the customer's need," she said. "Anything we create should meet an unmet need."
Danne Buchanan, an executive vice president with Zions Bancorp. and a member of the Nacha board, made similar observations.
The emergence of check imaging technology "is oftentimes viewed as being a competitor" for ACH payments, especially the accounts receivable conversion format that allows banks to convert checks into ACH transactions at a lockbox, Mr. Buchanan said.
But ARC payments and checks sent across image-exchange networks have different characteristics - they settle at different speeds, have different costs, and have their own risks, Mr. Buchanan said. The two payment mechanisms are complementary and bankers will find uses for both, he said.
Mr. McEntee said that the strategic plan created in 2001 called for Nacha to develop new risk management polices, anticipating the ensuing few years' surge in online payments fraud.
The plan written eight years ago recommended creating payment formats for converting consumer checks into electronic transactions. The result was five new ACH categories, including the ARC format, which has become the fastest-growing application in the network's history and accounted for more than half of the system's growth in 2004.
However, none of the executives predicted that another smash hit such as ARC will emerge from the plan now being put together. Mr. Ellis said that part of the reason for ARC's success is that it happens behind the scenes, invisible to the consumer.
"It's not easy to find new applications on the front end" that require changes in consumer behavior," Mr. Ellis said. "It's not easy to see anything that would grow as fast as ARC."
When Mr. McEntee opened the floor to questions from the audience, it became clear that many conference attendees had more immediate issues on their minds, especially the provision in the ARC rules that allows consumers to opt out of the process.
Kevin Schor, the CEO of Cheq Services International Inc., a Dallas transaction processor, drew applause when he asked the panel, "Why is Nacha obsessed with allowing the check writer to opt out?"
The handful of people who exercise this right are a nuisance to his processing system, Mr. Schor said. "If I write a check and give it to a merchant, it now belongs to the merchant, and the merchant should get to decide what to do with it," he said.
Several panel members agreed that handling the few opt-out requests is a burden, but also said that they want to respect their customers' wishes. "If a customer wants to opt out, that carries a lot of weight with me," Mr. Ellis said.
He said most people do not really understand the check conversion process, and suggested that if they did they would have little problem with it. "They are just making a payment, and they want information back about it," which is exactly what happens to converted checks.
Mr. McEntee said the opt-out rules were put in place to appease legislators, who also do not fully understand the ACH system, he said. He said that Nacha has been invited to testify next week at the House of Representatives on the impact of check imaging and check conversion, and he invited Mr. Schor to come to Washington and participate. (Mr. Schor said he would be happy to tell Congress exactly what he told the Nacha panel.)
"We would love to get rid of opt-out, but in the real world that's not possible," Mr. McEntee said.
