Here’s an update on NACHA topics from this morning’s sessions at the Association for Financial Professionals conference being held this week in Boston.
Check to ACH Conversion
Some of us in the industry will remember a brief and ill-fated “Check-ACH Coalition” in 2006, targeting a larger-scale conversion of checks to ACH, at a bank’s instigation (rather than the depositing customer). One can argue that this effort basically collapsed of its own weight – too many constituents, too broad a vision, etc.
So I was a bit skeptical when I heard about NACHA’s new DCT initiative, which sounded like déjà-vu all over again. But listening this morning to Elliott McEntee, President & CEO of NACHA, I changed my mind. The DCT initiative will let banks who receive checks under $25 for deposit to convert these transactions to ACH transactions.
Unlike ARC and BOC conversions, the DCT transaction will remain under check regulation (UCC and Reg CC) rather than Reg E, although it will be subject to NACHA rules giving Reg E like consumer protections. Significantly, neither the payee (check depositor) or the check writer needs to be involved – or consent to – the check conversion: it is entirely a back-office decision on the part of the banks.
During an 18 month pilot, the bank on which the check is written will have to opt-in to the system in order to receive DCT transactions. Presumably, after the pilot it will expand to include all NACHA banks as RDFI’s.
Simple, neat, and undoubtedly workable – and, I suspect, very appealing to the banks.
Why would a bank of deposit use it? It may still be more cost effective than check imaging – if there remains a stubbornly large number of endpoints which demand paper (the original check or an IRD) rather than image. A bank might not use it if they are finding that the acceptance of images by paying banks is moving quickly enough (i.e. the number of paying banks willing to receive images continues to increase sharply).
I suspect the DCT program will be successful, and be an important piece in the dramatic drop in the number of checks cleared as paper. Why dramatic? Because making big changes in payments systems is easiest when the rules change to allow for unilateral action – in this case, the bank of deposit can make a simple, unilateral decision.
Secure Vault Payments
This initiative has been explained too many times (consumer pays for purchase or bill at eCommerce site, is redirected to DDA bank, who authenticates consumer and “pushes” a no-risk payment to the merchant or biller).
The behind-the-scenes significance of SVP is that it will include an authorization fee (an interchange-like payment from the merchant/biller’s bank to the consumer’s bank) – a first for the ACH. The big question about SVP is whether or not banks and merchants/billers will think the benefits of the program will outweigh the costs – both development costs and on-going costs.
What was notable about this morning’s update was the complete absence of any announcements about major banks, merchants, or billers coming on board. Maybe NACHA just felt this wasn’t the right venue for these announcements?
Elliott was asked about NACHA’s position on the de-coupled debit product announced by Capital One. Some of NACHA’s major banks have asked NACHA to opine on whether or not this product is consistent with NACHA rules. There is a formal NACHA “rules interpretation process” underway. Results are expected to be announced following the November NACHA board meeting.