SAN ANTONIO - Every automated clearing house format designed to replace consumer checks posted impressive growth rates last year, and today consumers are using electronic payments more often than checks, according to the Federal Reserve Board.
By contrast, bankers are still waiting for the business market to develop; business-to-business transactions accounted for only 15% of the 12 billion ACH payments processed last year, according to Nacha, the Herndon, Va., clearing house group that sets the rules for ACH transactions.
But at Nacha's Payments 2005 conference here, bankers and vendors have been vocal about turning businesses - especially midsize ones, which still tend to pay most of their bills with checks - into electronic transactors.
Several conference participants were enthusiastic about an effort to simplify ACH files for corporate customers. Other participants suggested that getting small-business owners to try direct deposit payroll would naturally lead them to try additional ACH services.
All agreed on one thing: The key factor in increasing corporate ACH volume is making it simple to use.
Steve Ellis, who became Nacha's chairman this year, called the first era of the ACH network (when direct deposit developed) its business-to-consumer period. Today most of the growth is coming in consumer-to-business payments, and the next few years will be when the B-to-B market develops, said Mr. Ellis, who is also an executive vice president at Wells Fargo & Co. The transition "makes a lot of sense to me."
Marcie J. Haitema, a senior vice president with JPMorgan Chase & Co. and its global ACH operations executive, agreed that "B-to-B payments are the next nut to crack."
There are already plenty of B-to-B electronic payments, especially those using the ACH format for electronic data interchange. Last year the number of EDI payments rose 17.1% from 2003, to 213 million, Nacha reported.
However, Rossana Salaris, the Clearing House Payments Co. senior vice president who runs the New York company's Electronic Payments Network, said EDI systems are generally run on mainframe computers. Almost all the mainframes are owned by very large companies, and few new ones are being installed, she said.
The EDI format is a poor fit for a midsize company that may want to pay invoices electronically but does not want to invest in a massive system, she said.
That was why The Clearing House developed the EPN STP 820 format, a stripped-down version of the EDI file format, and started offering it in November. A standard EDI file can contain hundreds of data elements, but "smaller businesses don't need all of that," Ms. Salaris said.
An 820 file has just 10 fields, including the invoice number and customer name, she said.
George Ravich, the chief marketing officer at Fundtech Ltd., said the biggest challenge in corporate ACH is not sending the money, but sending enough information along with the money so that receivers can figure out who is paying them and why. This is especially so because many businesses remit a single payment for several invoices, he said.
For corporate ACH payments, "the issue really is all about the information."
Fundtech, which has dual headquarters in Jersey City and in Israel, was the first payments software vendor to announce support for the 820 standard. This summer Fundtech is scheduled to release software that lets businesses create ACH files that adhere to the format.
Valjean Sanchez, a vice president at Union Bank of California and a manager in its product management and development unit, said her San Francisco bank (which is majority owned by Mitsubishi Tokyo Financial Group Inc.) is already using software from Fundtech and plans to use the new software when it is ready so her corporate customers can use the 820 format.
"That will enable smaller and midsize companies to do the same things that big companies do" with EDI, Ms. Sanchez said. A few years ago her corporate customers were not even talking about making electronic payments, but "certain segments would be very eager to have this capability now."
In addition to Fundtech, two other vendors have endorsed the 820 standard. Last week Banklink, a New York treasury management software unit of Fiserv Inc., announced it was working on an application that uses the standard. Kathleen Dwyer, the ACH product manager at Banklink, said she expects to begin testing the software in July and is already talking with several potential banking participants, including Mercantile Bankshares Corp. of Baltimore.
One of the top complaints she hears from people using treasury management software, especially users without a lot of experience in creating electronic payments files, is that the process is too complex, Ms. Dwyer said. "Customers tell me, 'I have no idea how to use this.' "
P&H Solutions Inc. announced Tuesday at the Nacha show that it, too, has jumped on the 820 bandwagon. Debbie Smart, a product development manager at the Newton, Mass., company (formerly known as Politzer & Haney Inc.), said many large companies are forced to maintain two parallel payment systems, because so many customers or suppliers continue to use paper invoices and checks. Getting small companies to use 820 files "is something that larger trading partners have wanted to have happen for years," Ms. Smart said.
P&H will probably have an 820 product available early next year, she said. Mary Ann Haglund, a senior vice president and the cash management manager at Columbia State Bank in Tacoma, said she would probably use the product, especially since it will be integrated into the P&H software Columbia is already using.
There is "not a huge demand" among Columbia's corporate customers for something to create standardized ACH payment files now, but that is only because they have never been offered an easy way to do so, Ms. Haglund said.
During a conference session Monday on persuading corporate customers to use the ACH network, Ms. Haglund said many small companies start out with direct deposit. Once they become comfortable with that, it is often easy to sell them additional ACH services. This not only increases the bank's revenue, but also drives up customer retention rates, she said.
Richard Moore, the president and chief operating officer at Financial Fusion Inc., a Concord, Mass., unit of Sybase Inc., is using a similar approach. On Tuesday at the Nacha conference, his company unveiled a new version of its Corporate Banking Solution software, which includes improved reporting capabilities and payment templates.
Financial Fusion's software is geared toward big banks, and the new version already has eight customers, including Fifth Third Bancorp of Cincinnati, he said.
The software's single underlying platform lets banks install different modules to suit their needs; as their corporate customers become more comfortable with online cash management, banks typically become more willing to expand the capabilities of their systems, Mr. Moore said.
Leonard J. Heckwolf, a senior vice president in the treasury services unit at JPMorgan Chase and Mr. Ellis' predecessor as Nacha's chairman, said in an interview Monday that companies chasing the corporate payment market should focus on simplicity.
"Whoever can come up with a simple solution will have the market share," he said. "But nobody has one today. Nobody is even close."
