When Leonard J. Heckwolf became Nacha's chairman in January 2003, accounts receivable conversion was one of the least-used types of automated clearing house payments, online bill payment was a novelty for consumers, and bankers weren't sure whether Check 21 would become law.
But during his two-year term, the payments landscape has been transformed - multiple mechanisms now in widespread use have dramatically reduced the number of consumer checks.
"I think the consumer piece is in place now," said Mr. Heckwolf, who will step down next month from his post with the electronic payments association.
And now that the banking industry has implemented electronic options for consumer payments, he sees a dual mandate for his still-unannounced successor.
First, he says, banks have to address business payments, which remain largely paper-based. Second, and perhaps more importantly, banks must start looking at these issues not as discrete problems to tackle, but as elements of an overall payments strategy.
"We've had positive movement, but it has been movement without an overarching agreement from the industry and the Fed over our direction," said Mr. Heckwolf, who is also the senior vice president and product head for ACH and retail lockbox operations at J.P. Morgan Chase & Co., the largest ACH originating bank. "The challenge for our industry is to make a decision about which way it wants to go."
Perhaps the most obvious change during Mr. Heckwolf's tenure at Nacha has been the rapid evolution of consumer payments. Online bill payment has rapidly become a common way to make monthly payments without paper checks. Many consumers continue to mail in checks, but banks are now using the ARC process to convert them into ACH payments (a billion items this year, and a projected 1.25 billion next year).
When banks cannot use ARC, some can now convert the checks into digital images and process them electronically, thanks to the Check Clearing for the 21st Century Act, which took effect in October.
Mr. Heckwolf did not put these policies into place. ARC was approved in March 2002, and bankers were talking about online bill payment and check imaging long before that. But he led Nacha during two years of transformation in the payments industry. He said that one of his main tasks during his term was to ensure that these new technologies emerged as popular options in the consumer market - and that's exactly what happened.
"The last two years have been about managing the growth" of these services, he said. "There is a clear path to an almost universal preference among consumers to use electronic payments."
The Herndon, Va., trade group will announce his successor this month. Mr. Heckwolf will remain on its 19-member board as the immediate-past-president, a position designed to preserve a sense of institutional memory within the group.
Nacha's board has four two-day meetings every year and it often has unofficial conference calls between those meetings. The group's mission is to shape the rules and policies that govern the ACH network, though after the board drafts a proposal, it must still be approved by a vote among Nacha's entire membership.
Mr. Heckwolf said the chairmanship demanded "much more time than I ever thought it would" but was "an incredible experience." Nacha has already chosen the next chairperson, and Mr. Heckwolf said he had a meeting last month with his successor at a payments conference in San Diego to discuss the payments industry's future.
Since electronic consumer payments are now largely in place, he said, the group needs to focus on the corporate side. For example, ACH rules bar business checks from going through the ARC process. Corporations often use positive pay lists to prevent check fraud; their banks get a list of the checks they have written, and if a check not on the list is presented for payment, the bank will raise a red flag.
Businesses have resisted the idea of permitting ARC for business checks, because converting the items to ACH payments could render the positive pay process impossible.
Mr. Heckwolf said pushing for business check conversion should be one of the top items on the new chairperson's agenda. In the past, he said, the board has sometimes failed to attain some goals simply by not making a decision on what it wants to pursue.
The group was very aggressive about pushing for the consumer payment options, and it needs to be just as focused now on business checks, he said. "I do think the industry has to make some real decisions" on the issue.
However, he said that ARC is just an interim technology, designed to convert paper payments into electronic ones. The endgame is to persuade consumers and corporations to issue electronic payments instead of writing checks.
"We need a high-quality business-to-business electronic payment system," Mr. Heckwolf said. "That's what people need to focus on for the next three to five years."
And on a larger scale, he said that banks must also start devising an industrywide payments strategy. He noted that paper checks are almost extinct in Canada, largely because the country's banks made a conscious effort to promote electronic payments instead.
"Canada has done this very well," but the United States is lacking in overall direction, he said.
One hopeful sign of cooperation within the industry in creating a overall payments vision has been the progress in developing a rule for return entry fees. Mr. Heckwolf noted that the proposal calls for banks that originate some ACH payments that must be returned to pay the receiving bank a fee. The current rules have no such provision, and many smaller receiving banks have said processing return items can become an economic burden.
Some originating banks initially resisted the idea, because it would cost them money, but Mr. Heckwolf said that many banks now recognize that the proposal is fair and will lead to improvements in the overall payments network. This level of cooperation indicates that U.S. banks can see beyond their own self-interest and work toward an industrywide goal, he said.
Now the banks just have to decide what that goal should be, he said.
The banking industry seems to be unsure whether to pursue a slow transition to electronic payments or a rapid one, Mr. Heckwolf said. A slow transition would minimize the economic disruption that would come from replacing well-entrenched check processing infrastructure. A rapid transition would lead to improved efficiencies, but it would also produce some short-term pain.
"We have some big decisions to make," he said.
Perhaps not surprisingly, the electronic payments executive advocates a rapid transition. "I think ultimately, you have to go in the direction that offers the greater efficiencies. It makes a lot of sense."
