AUSTIN — Though still in the nascent stages of adoption, some new online payment services aimed at driving transaction volume over the automated clearing house network are starting to have an effect.
The number of ACH transactions that were conducted in 2010 rose 3.4%, to 19.4 billion, Nacha, the electronic payments association, reported Monday. That compares with a 2.6% increase in volume in 2009. The dollar volume that was moved over the network last year was $31.7 trillion.
Though Nacha expected transaction volume in 2010 to surpass that of 2009, this increase reinforces the idea that the ACH network is continuing to find new avenues for growth, Janet Estep, the president and chief executive of Nacha, said in an interview here Sunday before the start of the Herndon, Va., group's Payments 2011 conference.
"The ACH network is there for any player to use, and that means that it is there for financial institutions to use to … make services available to their customers, both … consumers as well as businesses," Estep said.
Programs like Secure Vault Payments, the Electronic Billing Information Delivery Service and other initiatives by Nacha, which oversees ACH operating rules, could continue mitigating declines in transaction categories that once were major sources of growth, such as check conversion.
The proliferation of mobile payment services, including those that allow a consumer to make purchases and schedule payments on a mobile device and those that use the device as a card replacement, could also be a boon for the network.
To position the ACH network to play a role in mobile payments, Nacha's members in May approved a rule expanding the definition of the WEB transaction category, which pertains to consumer payments authorized over the Internet, to include debits initiated over a wireless network. The rule change, meant to give banks more clarity over how to classify transactions originated on a mobile Web browser or dedicated application, took effect in January.
That change is just one of several that Nacha has introduced or is planning to introduce in an effort to give banks more flexibility in how they can offer ACH services to customers, said Mike Herd, the managing director of ACH network rules at Nacha, in an interview Sunday.
For example, in September new rules will take effect that allow businesses to set up recurring ACH payments using the TEL entry code, for payments that consumers initiate by telephone. Currently the TEL category can only be used for one-time payments.
Improved economic conditions and rising comfort levels with electronic transactions among consumers helped ACH volume rise last year, Estep said. Increases in individual categories provided further insight into spending trends, she said.
Nacha reported a 15.6% jump in the number of consumer-initiated entry, or CIE, transactions, which reached 137.8 million, in 2010.
Estep ties this increase to the expansion of Electronic Billing Information Delivery Service, or EBIDS. The service, which is commercially available after a multi-year pilot, lets companies, such as utilities and carriers, send bills directly to their customers' bank websites over the ACH network. Consumers receive the bills as a message on their bank's website.
That is "just too much of an increase to say there isn't a direct correlation," she said.
Such services have also helped contribute to more "native electronic payments," or those that are initiated as an ACH transaction from the start rather than being converted from a check, Estep said.
Electronic billing services have helped contribute to Wells Fargo & Co.'s ACH volume, said Laura Lee Orcutt, a senior vice president and electronic payments group product manager at the San Francisco bank.
Wells Fargo was both the second largest originator and receiver of ACH transactions in 2010, according to lists Nacha also released on Monday. The bank's origination volume increased by 2.7%, to 3.03 billion and receive volume declined by 1.7% to 1.46 billion.
The lists exclude "on-us" transactions, or those in which the originating and receiving bank are the same.
Experts say while initiatives like Secure Vault Payments and EBIDS may help wring more volume out of the network, the bigger opportunity for Nacha lies in driving business-to-business payment volume.
"That's really where they need to do the work to get that moving," said George Thomas, a principal who works on commercial payments issues with Radix Consulting Corp. in Oakdale, N.Y., in an interview on Sunday.
Banks are looking to help commercial clients automate more of their invoice and transaction processing by eliminating the paper that often goes with those transactions. But many businesses have struggled to eliminate paper checks from their purchasing transactions because of the need to match up invoice data from their suppliers.
Nacha's corporate trade exchange, or CTX, category allows a business to send up to 800,000 characters of information with a payment. The transaction code saw an 11.1% increase in transactions, to 67.03 million, in 2010.
While 11% growth is good, the total number of transactions completed shows there is still significant room to get more businesses to adopt use of the category, Thomas said.
This requires significant work on the businesses' part, but "I still don't think the banks have the right tools in place on the front end and the back end" to entice commercial clients still dealing with paper to make investments necessary to shift to electronic payments, Thomas said.
Many businesses and their banks and software vendors are working on ways to automate the receiving and management of that information, Estep said.
"It requires the supplier … as well as the purchasers in a B-to-B transaction to have their systems aligned," Estep said, adding the same is true for banks and software vendors.
Timothy Schmidt, the vice president of electronic payments in the global treasury management division at U.S. Bancorp, said he expects use of the CTX category to continue growing at a steady pace.
While historically there has been some resistance among businesses using the category because of the strong hold checks still have in the B-to-B world, that has been dissipating, Schmidt said.
"We definitely still encounter that but I think the fact that some of the largest buyers are moving toward full electronic solutions, that is helping to bring the supply side along as well, which I think has been a bit slower in the past," Schmidt said in an interview on Friday.
For small businesses, the issue is still one of resources.
"You have a lot of small and medium-sized businesses who perhaps cannot throw the types of resources [needed] at aligning their systems," Herd said.
While native transactions are on the rise because of increased consumer and business use, transaction categories stemming from check conversion are continuing to show declines or slower growth.
For example, accounts receivable, or ARC entries, declined 8.5% in 2010, to 2.2 billion transactions. The entry typically involves the conversion of consumer checks that are received by a business in the mail to ACH transactions.
As check volumes in general continue to decline, that category and related ones, like back-office conversion, or BOC, and point-of-purchase conversions, or POP, entries will also decline or experience slower growth.
How that affects individual banks depends on their mix of services.
Schmidt said U.S. Bancorp still sees growth from ARC.
"We're a strong lock-box bank on the paper side," Schmidt said, adding it has seen a "lot of growth" in its ARC volume.
"You might say we've seen that wave kind of pass by us [as an industry]," Schmidt added. U.S. Bancorp's lock-box operations allow it "to kind of ride that wave a bit longer."
The Minneapolis bank was the sixth-largest originator of ACH transactions in 2010, with its volume increasing 12.8%, to 585.7 million.
It received 402.6 million transactions, up 8.1% from 2009, making it the fifth-largest receiver.
