ACH Is Next Frontier for Mobile Phones

Mobile phones may soon be able to initiate automated clearing house transactions from checks, an advance that could hasten adoption of wireless devices for business-to-business payments.

Phones can already be used to accept credit cards and to convert paper checks into digital images, but there has been little effort to connect them to the ACH network. Now a start-up company called Aptys Solutions LLC is developing a mobile reader that would let phones convert checks into ACH payments.

Aptys, of Rockwall, Texas, will be competing in a market where new concepts surface almost every week but where few applications are actually available. And it is far from clear which mobile payment technologies will ultimately gain widespread acceptance.

Sean Pennock, Aptys' president, said ACH conversion could be particularly appealing for business-to-business transactions, where checks remain a preferred method of payment.

"Businesses are in love with checks," he said. "They don't pay by credit card."

Aptys' approach requires a hardware add-on that enables phones to read the magnetic ink character recognition line on paper checks to create an ACH file. The important part of his concept, which is still in development, is that it does not require any change in behavior on the part of the company making the payment, he said.

"If I'm a beer distributor, my customers want to write me a check," Pennock said. And that distributor "has been accepting check payments for the bank for as long as he's been in business — so why change now?"

Aptys, which plans to announce its launch Monday, sells payment processing technology to bankers' banks and correspondent banks. Its main product is PayHUB, a treasury management system that handles multiple payment types on a common platform, which Aptys said would reduce cost and complexity for its users. This infrastructure makes things like the MICR-scanning system possible, Pennock said.

Aptys has applied for a patent on the MICR-scanning technology, but has yet to build a prototype. The ACH payment could be handled using either the back office conversion or accounts receivable conversion formats.

In its final form, which Pennock said would be unveiled this year, Aptys' mobile check scanner could resemble Square Inc.'s credit card reader, a small plastic gadget that connects to the headphone port of a mobile device and interprets payment data as an audio signal.

The market for mobile payment acceptance is getting increasingly diverse. In addition to Square's technology, which today works only with Apple Inc.'s iPad tablet, VeriFone Holdings Inc. has an iPhone card reader attachment sold in Apple retail stores. Mitek Systems Inc. sells a check imaging application that works with phones' built-in cameras to convert checks into digital images.

Alternative payment providers like Obopay Inc. and the PayPal Inc. unit of eBay Inc. allow payments to be accepted through phone software, and many conventional manufacturers of payment card readers sell portable versions of their products.

Observers say devices that work with a phone are good for budget-conscious businesses, because they do not require a separately purchased wireless data plan from what the phone already uses.

Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass., said Aptys' technology serves a definite business need.

"The time between when you get the payment and when you get the settlement can be quite long," McPherson said, and a product that can shorten that window by even a day holds appeal for merchants.

For mobile, Aptys' biggest challenge is overcoming Mitek, which does not require add-on hardware to image checks and has already licensed its software to several mobile banking providers.

"The add-on hardware is my sticking point," McPherson said. "If there's a viable alternative that does not require hardware, then that will win, almost certainly."

However, Aptys has far more potential for its primary business, McPherson said.

"A payment hub that's targeted to bankers' banks … that's something that nobody's really carved out," he said.

Ellen Carney, a senior analyst with Forrester Research Inc. in Cambridge, Mass., agreed that Aptys' broader payment services are likelier to find an audience, because the company can help banks not only cut costs, but also offer new payment services.

"They hit those things that banks definitely care about," she said.

Aptys' approach to mobile also has value for business payments, since it addresses the few remaining drawbacks of check payments. To use Pennock's example, until the beer distributor finishes his deliveries and returns to the bank, he hasn't really been paid, so the security risk grows with each delivery. "These guys can't go running off to the bank and they don't want to leave checks in the glove compartment," Carney said.

Despite its benefits, many banks may be cautious about Aptys' unproven approach to check acceptance, Carney said. "They're going to have to find an innovative bank that's going to be interested in doing something like that."

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