Back Office Conversion Growth Strong, But Big Gains May Come in ’08

Growth in the new back-office conversion, or BOC, electronic-check code far outpaced growth of all other automated clearing house transaction categories in the third quarter, but don't get too excited yet. BOC only went live March 16, so its 238% increase to 840,743 transactions came off a very small base of 248,919 transactions in the second quarter. Daniel L. Miner, senior director of network development at NACHA, the governing organization of the ACH, calls the third-quarter numbers “certainly encouraging,” but expects higher growth rates to kick in later as more retailers adopt BOC. “I think we're probably going to see more significant jumps in those volumes in mid to late 2008,” he says. Herndon, Va.-based NACHA has said it didn't expect a tide of BOC volume out of the gate because retailers, financial institutions, and vendors all needed to learn about the new code and develop their offerings or acceptance procedures. Although there can be variations on the BOC theme, the code in its most basic form lets retailers scan paper checks in their back offices for conversion into ACH debits, removing the need to submit them into the banking system for clearing and settlement. Executives from several retailers, including Target Corp., Kohl's Corp., and The Home Depot Inc. said at October's annual conference of the Association for Financial Professionals in Boston that their companies are interested in BOC. With BOC still taking root, NACHA's more established e-check codes continued to lead the ACH's other categories in growth when compared with 2006's third quarter. Accounts receivable conversion, or ARC, the code for lockbox ACH conversion, posted 654.5 million transactions in the third quarter, up 19.6% from 547.1 million a year earlier. POP, for point of purchase, continued its strong run with 123.3 million transactions, up 53.2% from 80.5 million in 2006's third quarter but down about 3% from the second quarter. No. 1 retailer Wal-Mart Stores Inc. is POP's leading acceptor. Drug-store chain CVS Caremark Corp. indicated interest in POP at the AFP conference. WEB, for Internet ACH payments such as electronic bill pay, garnered 433 million transactions in the third quarter, up 26.6% from 342 million a year earlier. TEL, for telephone-based payments, had 84.2 million transactions, up 13.3% from 74.3 million.