Drop in Check Writing Cools off Once Red-Hot ACH E-Checks

With the exception of the new back-office conversion application, or BOC, growth rates for the automated clearing house's electronic-check codes for transactions originating with paper checks declined in the third quarter. Those numbers might indicate one-time or seasonal blips, especially with the weakening economy, but they could also show that the long-term decline in consumer check writing finally is pulling down high-flying electronic checks. According to NACHA, governing body of the ACH, transaction volume for the point-of-purchase (POP) standard entry class code fell 4.7% to 117.5 million transactions from 123.3 million in 2007's third quarter. POP also was off 4% from 122.4 million transactions in the second quarter. ARC, for accounts receivable conversion, the e-check code for checks sent to lockboxes, fell 0.3% to 652.5 million from the year-earlier period's 654.5 million. ARC volume fell 2.6% from 669.8 million transactions in the second quarter. The e-check star once again was BOC, which went live only in March 2007. Third-quarter volume hit 26.4 million transactions, up more than 3,000% from just 840,743 transactions a year earlier. Volume was up 193% from 9.02 million transactions in 2008's second quarter. A major Federal Reserve study estimated the volume of checks paid fell at a compounded annual rate of 6.4% between 2003 and 2006 (Digital Transactions News, Dec. 10, 2007). Robert Meara, senior analyst for banking with Boston-based Celent LLC, predicted in a research report late last year that the secular fall-off in checks written to retailers eventually would cause retailers' fast-rising e-check volumes to plateau in 2009 and 2010, then decline. That could be starting to happen already. After a slow start, POP, NACHA's older conversion alternative for the retail countertop, had a couple of strong years when Wal-Mart Stores Inc. and some other medium to large retailers adopted it, but the third-quarter numbers suggest its growth days may be over. “That's clearly a direct result of the decline in check usage at the point of sale,” says Meara. He adds, however, that the slowdown in consumer spending “is probably a factor” in POP's third-quarter performance too. Few new retailers or billers, meanwhile, have announced new ARC rollouts this year to convert to ACH transactions the checks customers send them. Merchants also have more electronic options as the imaging of checks under the Check Clearing Act for the 21st Century, or Check 21, becomes more widespread and less expensive, Meara notes. “It isn't a slam against ARC [but] … if you've haven't implemented ARC already, you probably aren't going to,” he says. It's unclear how long BOC's boom will last. BOC lets retailers convert checks in their back offices or even remotely, sparing them the supposedly more onerous employee training and consumer-notification requirements of POP as well as the need to outfit checkout lanes with check-reading equipment. While Meara and others have predicted that BOC wouldn't be much of a hit, some firms see opportunity. A suburban Minneapolis processor, Solutran Inc., has quickly built a business around BOC and claims to have handled 53% of BOC's second-quarter transactions. A Solutran spokesperson was unavailable for comment. Apart from BOC, NACHA's two still-growing e-check codes originate from transactions that don't rely on paper checks for raw material. With countless billers strongly pushing electronic payment, the WEB code for online bill payments saw its third-quarter volume rise 20.8% to 522.9 million transactions from 433 million a year earlier. WEB's volume also was up from the second quarter by 3.4%. TEL, for telephone-based ACH conversions, posted 86.2 million transactions, up 2.5% from 84.2 million in 2007's third quarter but unchanged from the second quarter. Total ACH volume in the third quarter rose 7.7% to 3.71 billion transactions from 3.45 billion a year earlier.