The automated clearing house will keep squeezing checks out of the payments system in 2006, says George Thomas, evp of the Clearing House Payments Company, LLC.
The big event this year? Back office conversion, says Thomas—converting checks to ACH debits in the retailer’s back office, instead of at the point of sale as an ARC [accounts receivable conversion] transaction.
The phenomenon, called POP [point of presentment], will be short lived because of the accelerating use of debit cards, he adds, but it will be an important step on the road to a fully electronic payments system. “Those transactions won’t stay on the ACH in the long term; they’ll go to cards. ARC is an interim transaction, too. But they accelerate the trend” to electronic retail payments, he says.
Thomas estimates ACH volume will grow anywhere from 17 percent to 20 percent in 2006 over 2005. “Those are big numbers now, but the growth is robust—all ACH volumes should be about 12 billion transactions in 2006—and it should stay a big growth business for the banks.”
In 2004, the last year for which federal full-year statistical tables are available, the Fed processed 5.4 billion commercial ACH transactions. Projecting ordinary volumes for the fourth quarter, Fed commercial ACH volumes should be about $7.4 billion payments. The Clearing House, which has the largest ACH market share after the Fed, is expecting to see its volume grow from 40 percent of all ACH payments last year, to 48 percent in 2006.
These venues, taken together, are leading to the time when people are routinely making what Thomas calls native electronic payments–end-to-end electronic payments.“The real value to the industry is getting to an electronic environment,” says Thomas. “That’s where the benefit to everyone is.”
Opportunities for the future include business-to-business checks. Traditionally, that’s been a tough problem, because banks, which charge a little fee for everything from adding a paper clip to a pile of checks, to removing a staple from a letter, earn huge fees out of the commercial checks department. But that volume is large—Thomas estimates about 4 billion such checks are written every year—and they can’t escape the electronic environment forever. “Some will go to wire [transmissions] for large value payments that have to be made the same day, and some will go to payment cards, but the vast majority will go to ACH. It’s a huge opportunity,” he says.
He adds that a bigger opportunity down the road is person-to-person payments, made directly from one DDA account to another, and mainly over the ACH network.
“We’ve conducted some man-on-the-street interviews in New York, and talked to a lot of young people, and we found they don’t write checks. They use debit cards and home banking to pay for things,” says Thomas. Kids, of course, are the future; so look for checks to continue withering on the vine. (Contact: George Thomas, The Clearing House Payments Co., 212-612-9200)