Retail lockbox check conversion

Today, Dec 2002 by Theisen, Keith K

remittance processing

BILLERS AND PROCESSORS ARE WEIGHING THE PROS AND CONS OF THE AUTOMATED PAYMENT METHOD CALLED ACCOUNTS RECEIVABLE ENTRY PROMISING TO REDUCE PAPER-HANDLING AND SHORTEN "FLOAT" THIS DEBIT SYSTEM HAS A STRONG BACKING. HOWEVER, ARC PIONEERS WARN: START WITH A PILOT.

Wells Fargo Card Services, headquartered in Des Moines, Iowa, manages a portfolio of more than 3.8 million active Visa and MasterCard consumer credit card accounts. In spring of 2002, Wells Fargo Card Services embarked on an ARC (Accounts Recievable Entry) check conversion pilot program with the following objectives:

* To evaluate customer reaction

* To determine financial benefits

* To establish a template for other Wells Fargo business lines to follow

PILOT PARAMETERS

The pilot population consisted of 150,000 payments per month. The performance goal of the pilot was to convert 80% of these payments to ACH debits.

The pilot was conducted between April 15 and August 31, 2002. On April 15, return envelopes included with customer statements were changed to route payments to the new ARC lockbox zip code.

CUSTOMER IMPACT

Prior to the pilot, Wells Fargo Card Services considered the impact of check conversion on customers. Checks converted to ACH debits are not returned to customers with their bank statements. The impact of this was expected to be relatively minor as fewer than one in three Wells Fargo customers currently receives his/her checks back. The payments appear in the electronic section of the customer's bank statement with a description that includes the payee-Wells Fargo Card, check payment, and check serial number.

Wells Fargo Card Services wanted a high level of check conversion acceptance accompanied by a low level of customer complaints, so they developed a marketing and communications program devoted to these goals. For instance:

* NACHA requires that check images be retained for two years; Wells Fargo Card Services decided to maintain their customers' check images for seven years.

* Notification inserts went out with all pilot account statements. (After the pilot. notice was added to the language on the back of account statements.)

* An "opt out" option, was offered and communicated to customers.

ACH PROCESSING CHALLENGES

To succeed, this pilot program had to address the following ACH processing challenges that apply to virtually every ARC pilot and implementation:

* Separating "ineligible" items from consumer checks (corporate checks are not eligible for ARC processing)

* Accurate MICR line information parsing

* Converting credit union pay(ablethrough share drafts and other non-- ACH accounts

NACHA Operating Rules state that only consumer checks are eligible for conversion to ACH debits. In addition to consumer checks, a retail lockbox typically receives money orders, traveler's checks, cashier's checks, convenience checks (credit card balance transfer checks), commercial checks, convenience checks (credit items, none of which can be card balance transfer checks), commercial checks, and government items, none of which can be converted to ACH debits. To successfully convert only eligible items, consumer checks must first be separated from the ineligible items received into the lockbox.

Incorrect parsing of MICR line information is the most frequent cause of administrative returns. Parsing correct information from MICR lines of checks into valid ACH transactions is challenging because no uniform standard exists as to how or where identifying numbers appear within the on-us field of the MICR line. The bank routing number, check sequence number, and account number must be identified, separated, and captured in the correct order.

Credit unions using payable-through banks for check processing may require a different routing and/or account number for an ACH debit than they (to for a check. The routing number on the check MICR line is that of the payable-- through bank. The actual account number will likely contain a credit union identifier plus the account number. In order to convert a credit union payable-- through draft to an ACH transaction. the routing number may need to be changed to that of the credit union, and the credit union identifier may need to be removed from the account number.

Unless these data "parsing" challenges are met, high volumes of administrative returns and exception items can negate all the benefits of an ARC check conversion program. In the NACHA ARC pilot, the number one reason for return items-accounting for nearly 58% of returns-was the category "no account / unable to locate account / or invalid account numbers."

WELLS FARGO EXPRESS CHECK CONVERSION SOLUTION

In 2001, while participating in the NACHA ARC pilot, Wells Fargo initiated a project with the goals of ensuring that virtually every item eligible for ACH conversion is converted and collected successfully and eliminating administrative return processing resulting from the lack of MICR line standardization.

The project resulted in the development of Wells Fargo Express Check, \Wells Fargo's end-to-end solutions for check conversion applications. Wells Fargo Card Services integrated Wells Fargo Express Check conversion solutions into the new ARC lockbox processing prior to the pilot launch.