The astronomical growth of accounts receivable conversion, a big money-maker for the payments industry, has slowed down.
ARC turns paper checks into automatic clearing house payments at biller lockbox sites. Year-to-year growth in the number of such conversions reached 791% in the second quarter, but slowed to 509% in the third, according to Nacha, the electronic payments association.
Nevertheless that growth, to 266 million transactions, was the main reason that commercial ACH transactions rose 25% over all, to 2.1 billion.
Banks and billers will process 1 billion ARC payments this year, predicted Elliott C. McEntee, Nacha's president and chief executive, on Wednesday. He said overall ACH growth could top 20% for the first time since 1990, when commercial ACH payments rose 22%. (The figures exclude federal government payments and "on-us" payments within a single bank.)
The ARC format, which billers began using in March 2002, is the fastest growing in Nacha's history, and some slowdown was inevitable, Mr. McEntee said. "Some of the largest billers in the country and the biggest credit card issuers have already done their conversions," he said.
Mike Herd, a Nacha spokesman, made the point that "you can't have 800% growth forever." ARC payments increased 47% from the first quarter to the second but only 27% from the second to the third, according to the Herndon, Va., organization.
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, said he was surprised by the growth slowdown, he said.
He and Mr. McEntee predicted that ARC's growth could rise again. Billers who use Mellon's lockbox network but have not converted to the format are still talking about doing so, Mr. Lucas said. "The pipeline seems pretty robust."
Mr. McEntee said two large credit card companies, which he would not name, should begin using ARC in the first half, he said. "That will have a substantial impact."
Unlike other automatic clearing house processes, ARC is used for a huge volume of payments. Though persuading a consumer to sign up for direct deposit might mean a couple of payments each month, a biller's adopting ARC can mean tens of thousands.
Alenka Grealish, the manager of the banking group at the Boston research and consulting firm Celent Communications LLC, said ARC still has plenty of room to grow. However she said, check truncation - the transformation of paper checks into digital images - may eventually supplant it.
The Check Clearing for the 21st Century Act, which takes effect today, will give truncation a boost.
At some point lockbox operators will shift to truncation, Ms. Grealish said, though it may be several years before image-processing volume becomes more economical than ACH conversion. Celent projects that it will be 2007 before 60% of check clearing is done by image exchange; Ms. Grealish said that is likely to be the "tipping point" for lockbox operators to shift away from ARC.
For now, ARC remains "a must-have for any major retail lockbox," Ms. Grealish said. "The question is, how much do you invest in something that has a limited life span?"
