The automated clearing house, which revolutionized Social Security deposits and other recurring payments, may be going global.
Several U.S. and foreign banks and the National Automated Clearing House Association have put forward a plan for a Worldwide Automated Transaction Clearing House, or Watch.
It would rely on Internet communications protocols to create a low-cost, cross-border payment network.
Watch is still "basically a concept," said Priscilla Taylor, director of network products at the National Automated Clearing House Association- Nacha-in Herndon, Va. But the organizers want to develop a system by June 2002, she said.
Though most developed countries have an automated clearing house, each has its own operating rules and file standards.
An interoperable global system could reduce the cost of cross-border payments by 40%, Ms. Taylor said.
A single cross-border payment costs a corporation about $16, according to a 1998 study by Boston Consulting Group. It projected the cost would drop to $8 by 2005, when annual volume would hit four billion, assuming an 11% annual growth rate.
"Depending on how companies are doing cross-border payments today, it can get pretty expensive," said Laura J. Listwan, vice president of LaSalle National Bank in Chicago, a unit of ABN Amro. The bank has not decided whether it will join Watch, but Ms. Listwan said she thinks it "has a chance of making it."
The creation of Watch would support a recommendation last year by a task force on retail payment systems headed by Federal Reserve Board Vice Chairman Alice Rivlin.
"Our economy is becoming more global on a daily basis," she said in the report. "The business need to make payments more efficiently is certainly there."
Watch would be a not-for-profit, bank-owned entity, similar in governance to the Society for Worldwide Interbank Financial Telecommuication, the Belgium-based bank messaging network known as Swift. A group of banks approached Nacha, searching for "a neutral third party to run the project," Ms. Taylor said.
The seven entities that have committed themselves to the project's first phase are Bank of Scotland, Dresdner Bank of Germany, Royal Bank of Canada, UBS of Switzerland, U.S. Central Credit Union, Wells Fargo & Co., and the Federal Reserve's retail payments office.
This phase would cost an estimated $200,000, mostly for a consulting firm to examine the business case and draft a request for proposals.
The Nacha work group is hoping to attract 13 more institutions for the first phase by July 15. The specifications are expected to be completed by June 30, 2000.
A second phase would be aimed at getting 200 bank members to ante up about $100,000 each to develop and test a system.
Participating banks would do foreign exchange conversions and submit ACH files to Watch in the currency of the receiving country. Settlements would occur in central bank funds through a third party-perhaps New York-based CLS Bank, a real-time gross settlement system for foreign exchange transactions. Funds would be delivered to the collecting bank by the local ACH.
CLS Bank, formed last April in response to regulatory calls for the private sector to do more to reduce foreign exchange settlement risk, is scheduled to go live at midyear 2000.
George Thomas, senior vice president of the New York Clearing House Association, said he doubted that Watch would succeed. He cited substantial differences among local ACH systems in governance, operating rules, settlement and risk management procedures, communications protocols, and file formats.
He noted that a Nacha initiative to promote cross-border payments among the United States, Canada, and Mexico has not been very successful. Though Wells Fargo and Toronto-Dominion Bank have been exchanging payments, Mexico's ACH has dropped out of the effort.
Others are more optimistic about Watch's potential. Scott Carroll, product manager at U.S. Central Credit Union in Overland Park, Kan., said Watch could help the 36 corporate credit unions in his network send or receive international payments. The $28 billion-asset U.S. Central Credit Union's wholesale lending and payment services ultimately support 11,000 credit unions.
"We are looking at ways of doing things a little cheaper," Mr. Carroll said. "We do not have the global network it takes to do those kinds of things."