The Electronic Payments Network has moved closer to its goal of overtaking the Federal Reserve as the countrys premier handler of automated clearing house payments.
The private-sector network recently announced that First Union Corp. had sent 400,000 payments through its system in one day. And First Union, one of 19 bank owners of the network, expects to send all of its ACH payments more than 18 million a month through Electronic instead of the Fed by the end of January.
The Electronic Payments Network aims to raise its share of the ACH processing market, now 10%, to 75% by next December. The Federal Reserve dominates the market, processing 80% to 85% of ACH volume.
Once we get all the large banks on EPN, we will be doing the vast majority of ACH origination in the country, taking over what we feel will be very good market share, said George Thomas, president of the Electronic Payments Network. The network is a unit of Small Value Payments Co., which was spun off in April from New York Clearing House.
Some of the nations biggest originators of ACH payments are equity owners of the system and are either using Electronic Payments now or expect to be in the next year, in an attempt to make ACH processing more competitive, Mr. Thomas said.
Electronic Payments Network owners already processing automated clearing house payments through the system include ABN Amro, Bank of New York, Chase Manhattan Bank, Citibank, Deutsche Bank, FleetBoston Financial, and HSBC Bank USA.
Bank of New York, Deutsche Bank, and HSBC send all their payments through Electronic. Citibank sends almost all, and the others a part of their payments through it.
The remaining 10 bank owners planning to send some ACH volume to Electronic over the next year are BB&T Corp., Bank of America, Bank One, Comerica Bank, Key Bank, Mellon Bank, PNC, US Bank, Wachovia, and Wells Fargo, Mr. Thomas said.
Kevin Purcell, senior vice president of electronic payment processing at Charlotte, N.C.-based First Union, said: The formation of a viable private-sector clearing house is a good thing. EPN provides an important alternative for the payments industry. The governance of this payment system will be under the control and direction of the major banks in the U.S.
Richard Oliver, senior vice president and retail product manager for the Federal Reserve System, said market forces will dictate where ACH volume ultimately flows. I certainly think the Federal Reserve will try to devise new services and try to be as efficient as possible in the providing of services to banks, he said.
Mr. Thomas said the Fed is considering major changes to long-standing pricing practices that could drive more traffic to the private sector.
On Oct. 31 the Federal Reserve Board announced it planned to negotiate new pricing policies with private operators. One possible change is that private-sector ACH operators would be able to charge the Federal Reserve for delivering to their own customers ACH payments originated from the Feds customers.
Currently, private operators cannot charge fees to the Federal Reserve; they have to pay the Fed both for originating and receiving ACH payments, Mr. Oliver said.
And the Fed may eliminate the fees it charges private operators bank customers for payments delivered to the Fed. Instead, it would charge the private operators directly, and that could reducing the cost to banks of using private providers.
The Federal Reserve is targeting the end of the third quarter for implementing the possible changes, Mr. Oliver said.
Bill Nelson, executive vice president of Nacha, the electronic payments association, said, We applaud the Fed for coming out with the proposed changes, so whether a bank is a Federal Reserve customer or with a private operator, prices be kept low.
Private operations competing with the Federal Reserve besides EPN include the American Clearing House Association in Phoenix and VisaNet ACH Services, a unit of Visa U.S.A. in San Francisco.
The Federal Reserve is going to have for the first time a formidable private-sector competitor, Mr. Thomas said. The EPN is bank-owned and bank-controlled. The Federal Reserve doesnt take marching orders from banks. Banks are going to build the services that banks need going into the future.
Mr. Purcell of First Union said, A private-sector solution continues to be extremely important to generate the innovative ideas that are needed to move the payment system forward and produce a system that provides the lowest cost for bank customers.