As consumers were busy calculating the best way to pay off the holiday bills in early January, Chattanooga based ACH Federal announced that it is ready to compete for a piece of the growing electronic payments market.
"A part of what sets us apart is that we've designed our system with a lot of special reporting that allows customers to better moniter what's going on with the money they're sending out and getting back," said Kim Hawes, vice president of risk management at ACH Federal.
The automated clearinghouse, or ACH, system is the electronic backbone for services such as automatic bill pay or direct deposit, and ACH Federal account executive Craig Cotter believes that the growing industry has room for another competitor.
"For the everyday small business person, we've streamlined the system where if you wanted to send money to a supplier or pay your employees, we've made it very user friendly, and that's going to be one of the big plusses," said Mr. Cotter, who expects business to triple to a million transactions per month by the end of the year.
ACH Federal will emphasize security and compliance with new Electronic Payments Association rules as part of its business model in an attempt to assuage merchant and consumer fraud concerns, Mr. Cotter said.
"The people committing the scams have found that if they have an avenue into the electronic system, they can garner a lot more illegal funds more quickly than they can by checks and credit cards," Mr. Cotter said. "So what we have done for banks and merchant customers, we've built in safeguards to counteract that."
British regulators said in December 2009 that they will completely phase out the use of paper checks by 2018, and Mr. Cotter said ACH Federal is positioned to take advantage of similar trends in the U.S.
"All the payrolls in the country, every big business, even the government with the federal income tax, everyone want to do ACH now," said Mr. Cotter.
Part of the reason for the popularity of ACH has to do with the expense of check processing. Keith Sanford, executive vice president for First Tennessee Bank, said the new way is cheaper and less manpower intensive.
FAST FACTSAutomated clearinghouse statistics from 2006 to 2008* The number of new ACH customers is up 10 percent* Point of service debit card sales are up 19 percent* Volume of ACH transactions is up 21 percent* Total number of ACH transactions is up over 23 percent* Paper checks shrunk from a 46 percent share of total U.S/ payment volume in 2003 to 31 percent in 2006.* The only remaining Federal Reserve Bank that processes paper checks is the one in Cleveland.* ACH Federal does 300,000 transactions per month, with plans to expand to over a million by 2011.Sources: FSGBank, TowerGroup, Federal Reserve
"In the old days when a check came into a teller window for a deposit, we used to courier it downtown, then put it on an airplane and send it up to our check processing center outside of Knoxville or Memphis, and they would sort them out and put them on airplanes all across the country back to the bank it was written on," said Mr. Sanford. "Now we have a fancy machine upstairs that clears the check by electronic transaction without us having to transport that check anymore."
Terry Todd, regional president at FSGBank, said the continued growth of ACH transactions at the expense of conventional paper billing is going to continue unabated.
"I think if you look at outsourcing the payroll, it simplifies the process, especially through the human resources department and payroll taxes. For the employee, it simplifies that because the check is automatically deposited in their account." said Mr. Todd. "I think we seem to be going toward a paperless society."