ACH Challenges Cards In New Markets

These business transactions were for payments among trading partners, payroll, intra-company cash management transfers, government vendor payments, and business-to-government tax withholdings. Card companies, to executre against their strategic growth plans that target corporate accounts, must determine how they will displace ACH. At the same time, ACH has achieved its highest growth rates from inroads into consumer payments, a market where cards are entrenched. The ACH eCheck initiatives, as a group, grew 27.3% in a single quarter (vs. Q4 2003) and by 132.1% annually (Q1 2003 vs. Q1 2004), albeit not without significant growth pains. The ACH growth into non-recurring, low-value, consumer payment markets has worried consumer advocates, and even the Fed because of a potential for fraud and a lack of consumer account protection. These concerns are not likely to slow ACH growth in these markets, however, because growth is driven by merchant adoption -- when high volume, high value transactions are involved, merchants can save significantly by switching consumers to ACH. The report ACH Challenges Cards in New Markets looks at ACH strengths and weaknesses and identifies the impact of these on the participants that include consumers merchants, 3rd party processors, originating depository financial institution (ODFI), receiving depository financial institution (RDFI), and service providers that offer solutions that mitigate ACH risk. Highlights of this report include: * The spectacular growth rate of the ACH indicates that its new services resonate with an increasingly large audience, although still small in comparison with the traditional credit and debit networks * The rapid adoption of ARC by corporations and lockbox operators indicates that Check 21 solutions have an entrenched competitor that will not easily be displaced * While financial institutions are worried that ACH solutions lack safeguards that reduce the risk of fraud when used for Web and telephone orders, the fact remains that the merchant benefits and ease of use by consumers will continue to drive rapid adoption unless RDFIs take action * Competitors looking to penetrate the corporate market must determine how to deal with ACH that is already moving 1.3 billion transactions worth $19.7 trillion across the ACH network * The lack of a trusted third party to assist in dispute resolution is a weakness that grows in unison with eCheck popularity. It is unclear if NACHA can implement corrective rules and technology before reparable damage is done to the ACH reputation * Merchants, corporate users, and acquirers that drive ACH growth, find the benefits of ACH outweigh the problems caused by ACH settlement