Even before banks began converting checks to automated clearing house transactions at the retail lockbox in 2002, bankers wanted to include corporate checks as well as those of consumers.
Now, with the success of accounts receivable conversion, pressure is mounting anew to allow conversion of business checks.
Bankers say that even without conversion, some corporate clients are moving away from paper payments and toward electronic ones. Making conversion an option could further accelerate the decline in check processing.
J.P. Morgan Chase & Co., the nation's leading ACH originator, is one bank that is seeing the change. Alan Koenigsberg, a JPM Chase vice president, predicted an active lobbying effort this year to authorize business-check conversion.
The dramatic growth of ARC has been driven entirely by consumer payments, Mr. Koenigsberg said. "There's a whole other segment that could open up other growth."
Financial Insights Inc. says corporate payments are crucial for ACH and ARC.
"ARC will face limits to its growth by the end of the decade if it doesn't incorporate corporate checks," said Aaron McPherson, the Framingham, Mass., firm's research manager of payments, in a December interview.
Financial Insights projects that business-to-business ACH will grow 14% a year through 2008, against 13% for overall ACH volumes. Check conversion - including telephone and point of sale transactions, in addition to ARC - should grow at a 53% annual rate, the firm said.
Nacha, the electronic payments association, has said the 2004 tally will show that ARC transactions topped 1 billion transactions and that overall ACH growth topped 20% for the first time since 1990. ARC transaction volume alone grew 791% year over year in the second quarter and 509% in the third.
So far, however, corporations have resisted check conversion. William B. Nelson, an executive vice president at Nacha, of Herndon, Va., was cautious in discussing any expansion of ARC to include business checks.
Nacha is studying the ARC issue, but Mr. Nelson said he did not know what type of proposal might result. "Our board has asked us to do some additional research," he said. That will involve issues such as the impact of conversion on positive pay and other bank systems and on the accounting systems of the corporations themselves.
"We're in the process of getting a research effort under way to see what direction we should go," Mr. Nelson said Wednesday. Whether that means using ARC for business checks is not the biggest concern, he said. "The ultimate goal is to get the checks out of the system."
A study last month by the Federal Reserve found that e-payments have passed check volumes over all in the United States. But it also found consumers far ahead - in 2003, two-thirds of the 55 billion consumer payments were made electronically, versus only 28% of the 25.4 billion payments made by businesses and governments.
There is anecdotal evidence that some corporates are making the move. Citigroup Inc., for instance, says its overall ACH volume doubled last year. That was driven largely by ARC, but another factor was the growth of electronic B-to-B payments.
Maria Mandler, Citigroup's managing director of global cash management, acknowledged that "many corporates have a clear preference for the time-tested check-law framework" over the ARC rules, which have not been settled in court.
Even in the absence of business-check conversion, electronic payments are gaining ground with businesses, bankers say. "The benefits are well recognized by the industry," Ms. Mandler said. "The challenge is the reengineering that goes with it."
Not only must corporations change their accounting systems for payables and receivables, but banks also must adapt their processing systems to accommodate ACH. One barrier, an especially thorny issue to companies, has been the inability of check-clearing systems to communicate with the ACH systems, which can snarl the reconciliation of payments.
Banks are beginning to address these things. National City Corp. of Cleveland said last month that it had begun matching incoming ACH transactions against checking accounts, to correct improper conversions of business checks. Other banks say that they too are scrambling to link their ACH systems to others, such as the positive-pay systems that match incoming checks against a corporate issuer's issue file of payments to guard against check fraud.
Wachovia Corp. also says it is making progress selling customers on the use of e-payments, though " it's been a battle to get businesses to give up their checks on the corporate side," said Mark Havlik, a senior vice president with the Charlotte banking company and the payables business line manager for its treasury services division.
That is changing, he said - "for the first time, our volume now is more ACH than check." The line was crossed in November, with help from Wachovia's "integrated payables" processing for corporate clients. The service includes wire transfers and foreign exchange transactions.
