In three months, NACHA's long-awaited rules on back-office conversion (BOC) of checks officially go into effect. Retailers and billers finally will be able to convert eligible checks into Automated Clearing House (ACH) payments at the point of sale. Unlike similar programs enacted in the past, such as POP (point-of-purchase) check conversion, however, BOC will enable merchants and others to convert the checks in a batch mode -- at the end of the day, for example -- rather than individually at the cash register or at other manned billing stations.
The new rules mark a major shift in the payments space by providing yet another means to help streamline check processing. Now, banks and merchants will have clearly defined criteria of what constitutes a check that is eligible for ACH conversion -- those checks without auxiliary on-us fields and that are written for amounts less than $25,000.
Michael Herd, senior director of communications for Herndon, Va.-based NACHA, says there is a tremendous amount of interest in adopting back-office conversion. "At NACHA's conference next April, a number of banks will be presenting their case studies on their customers' experiences with the first 30 days of BOC," he says. "This tells us that a lot of customers will be ready to go on March 16, 2007 -- the very first day" the conversion rules go into effect.
Retailers will continue to take checks at registers as they normally do, but they will inform consumers that their checks will be converted to an ACH payment. People can opt out, but merchants then will have the option to tell them that they cannot pay with a check. This eliminates the need -- and cost -- to maintain several check-processing systems, says Esther Pigg, VP of global project management, CheckFree (Atlanta).
Of course, some education will be necessary, as the average consumer is unlikely to be familiar with ACH, according to Pigg. However, she says, the entire BOC process is a vast improvement over previous check-conversion efforts.
"With POP, you had to scan checks from consumers at each register. Then [the voided] check is handed back to the consumer along with a receipt they needed to sign showing they agreed to have their check converted," Pigg explains. "The new BOC process is much quicker and less confusing," she continues. "At the end of the day, the merchants collect the checks, scan them and send them out as an image cash letter."
CheckFree was quick to jump on the BOC bandwagon and has its own offering, which is integrated with its existing ACH solution, according to Pigg. She says CheckFree was careful to make its technology vendor-neutral to ease the burden on banks. The company's PEP+ reACH/BOC is designed to help financial institutions determine whether the checks they receive from merchants are eligible for ACH, Pigg notes.
Boon for Banks
Yet merchants are not the only ones who will benefit from this more-streamlined approach to converting checks. The opportunities for banks abound in a BOC world as well. "Back-office conversion will enable financial institutions to provide additional value to their customers in a business environment where many checks are still used," explains NACHA's Herd. Those benefits include greater speed and efficiency in routing and processing imaged checks.
"BOC is designed to address the shortcomings of the existing check-conversion process at the point of sale as well as fit consistently with electronic check processes enabled by Check 21," Herd continues. "With back-office conversion in place, banks and many of their customers will be able to use best-routing decisioning on every check that is deposited."
Considering the benefits, there's no doubt that BOC will add significant volume to the ACH system. "NACHA thinks that BOC will be a successful ACH product that complements other electronic check-processing methods," says Herd. "NACHA's business case in proposing the BOC rules estimated a most-likely volume of 3 billion payments annually by the fifth year." * --Maria Bruno-Britz