New rules for back-office conversion (BOC) likely will create opportunities around payments processing for retailers and banks. BOC allows retailers to convert eligible paper checks (checks that do not contain auxiliary on-us fields and are less than $25,000) received at the point of purchase into electronic ACH payments in their back offices. The idea, espoused by electronic payments organization NACHA (Herndon, Va.), is to enable more-efficient payments processing.
"Electronification is the path to payments prosperity for banks and our clients," says Craig Vaream, VP of treasury and securities services with JPMorgan Chase (New York; $1.2 trillion in assets). "From the client side, they get funds faster, transportation costs are eliminated and processing fees are cut. Banks benefit in terms of the efficiency. BOC is another way to expedite the clearing process."
When the rules officially take effect on March 16, however, expect retailers to take a cautious approach to implementing BOC, adds Vaream. "They'll probably run pilots to see how [BOC] will work for them," he predicts. "Retailers want to try it out first to see the impact of BOC on their organization, to see if any modifications need to be made. I think it will be more of a phased-in rollout than a big bang."
Still, "We're seeing a strong appetite for BOC from our retailer clients," Vaream says. "They want to understand what it means to them, the opportunities."
To that end, JPMorgan Chase offers a calculation model designed to show the benefits of migrating from paper check processing to BOC, according to Vaream. The tool examines costs and float, and allows clients to run different scenarios to see the impact of a BOC rollout on their operations.
Once convinced of the advantages of BOC, merchants will need to equip their back offices so that they have the ability to scan paper items, Vaream notes. In addition, "They have to define what the process is and how frequently they want to do the scanning. They also have to secure the physical checks and make sure they don't scan items multiple times," Vaream says. "They also have to train their people."
JPMorgan Chase offers clients a product called Image Deposit Direct that allows them to transmit the image files, Vaream relates. Checks can be viewed online within minutes of being scanned, he says, and the solution sports a Microsoft Windows interface that allows users to organize the check images by store or region, for example.
On the bank's side, not much updating was required on the IT side, notes Vaream. "It's just being able to send, receive, track and monitor the items," he says.
While banks and merchants may understand the benefits of BOC, consumers may need a little more time. According to Vaream, JPMorgan Chase trained its sales and service people on the corporate and retail sides so that they could deal with customer inquiries around BOC. And NACHA is providing merchants with verbiage to place on signs at their registers that includes the option for consumers to opt out.
Vaream is confident that people will catch on. "With BOC, they won't notice anything different until they receive their bank statements," he says. "Consumers are comfortable with the migration from checks to electronic payments." Vaream adds, "[BOC] is one more step to get us to a more efficient operating environment."