emerging electronic payments economy, The

Today, Dec 2002 by Rees, George, Lorenzo, Les

AFS is pleased to offer OPeRA (Optimum Presentment for electronic Remittance Automation) AFS OPeRA reviews every remittance check payment as it is received and through custom rules automatically determines the optimum presentment for paymentpaper check, converted to ARC e-check. or truncated and settled through a 3rd party check image exchange. www.afsimage.com (405) 787-1800

During a "down economy" it is the change agents who seize the potential of new technology initiatives. In the last year we have witnessed breakthrough technology offerings and new legislation that are permanently changing the landscape of the payment processing industry. These factors, along with the growing need to contain rising costs, are merging together as a motivating force for change, causing organizations to align technology with the business landscape in which they must now operate.

For the past two decades industry analysts have predicted the demise of the paper check, predicting that by the turn of the century all payments would be made electronically. While checks are still a predominant form of payment in our country, new electronic solutions that shatter paradigms and change the way payments are made, processed, and collected are now available and viable. The speed of change familiar to the computer industry has arrived in electronic payment processing.

Economic conditions in the payment processing industry have changed so radicall,N-competitive pressures, technological advances, and consumer preferences-that the current climate requires a very different and visionary approach. Technology-sav remittance. payment processing departments. and financial institutions are pursuing a critical evaluation of electronic check conversion and check image truncation to improve financials in a slow growth economy.

New Legislation is Accelerating Adoption of the Electronic Payments Economy

In the past there have been a myriad of regulatory concerns regarding electronic check conversion and check image exchange and settlement. New legislation is clearing these hurdles. These changes in the regulatory environment promise to transform the paper check from a formal legal document into a mere written payment instruction.

Effective March 15. 2002, NACHA (National ACH Clearing House Association) enacted new rules for Lockbox Check Conversion. On March 15, 2002, a new ACH entry called ARC (Accounts Receivable Entry) went into effect. An ARC entry is a one-time ACH debit entry to a consumer's account. An ARC transaction is initiated by an Originator for purchases or payments that are made by mailing a check to an Originator or placing the payment in a dropbox. The check becomes the "source document" for the ARC entry.

The Check Clearing for the 21 st Century Act (formerly known as The Check Truncation Act), introduced by Rep. Mike Ferguson of New Jersey, improves the efficiency of the check payments system by allowing banks to exchange checks electronically. Current law requires banks to physically present and return original checks, a tedious and antiquated process with increasing potential for fraud. This legislation will also reduce infrastructure costs for banks, allowing for more flexibility and greater cost savings for the consumer. This legislation gives electronic versions of checks the same legal validity as paper checks, thus providing customers with faster check clearing and greater access to capital.

ACH Growth

In the past, ACH concentrated exclusively on direct deposit of payroll checks, Social Security benefits and tax refunds, direct payment of consumer bills. business-to-business payments, and federal tax payments, but the focus is shifting. In 2001 more than 200 million e-check payments were made. (An e-check is an electronic debit to a consumer's check account that is initiated at the point of sale, on the Internet, over the phone, and most recently via a bill remittance sent through the mail, and processed using the ACH Network). New NACHA ARC (Account Receivable Entry) operating rules that govern the processing and handling of electronic checks will substantially reduce paymentprocessing costs by allowing checks delivered to remittance and lockbox locations to be converted into e-checks through the Automated Clearing House (ACH) network. ARC gives billers the advantage of cost savings and the efficiencies of electronic payment processing-while still allowing customers to write checks as an authorization to create an EFT if they prefer. In 2002 both retailers and billers are beginning to take advantage of the savings and efficiencies inherent in electronic payment processing by converting paper checks into e-checks. -ARC electronic check conversion can convert a remittance department into a revenue generating profit center.

Plenty of Room for Even More ACH Growth

According to a recent study by the Federal Reserve Bank, 3.9 billion business-tobusiness remittance payments are generated in the United States on an annual basis. 86% of business-to-business payments are via paper check. Only 14% of business-tobusiness payments are electronic. According to the same study, there are over 8.5 billion remittance payments from consumers-tobusiness executed annually by paper check. Billions of dollars can be saved as we move to an electronic payments economy