In an industry that seems to endorse change less frequently than Halley's Comet makes an appearance, the world of check processing and of the Automated Clearing House has finally adopted a new form of Transaction Processing.

Since our last issue of TPAtlanta, NACHA, the National Automated Clearinghouse Association, has promulgated the rules for retailers and other business than accept checks to convert these pieces of paper to electronic document right on their own premises without having to send the paper check to a bank for processing through the nation's check clearing networks.

Back Office Conversion (BOC), the newest form of check conversion, became available in the marketplace on Friday, March 16, 2007 with the effective date of NACHA's rules. BOC will allow retailers and billers that accept checks at the point-of-sale or at manned bill payment locations to convert eligible checks to ACH debits in the back-office.

"Back Office Conversion will enable financial institutions to provide additional value to their customers in a business environment where many checks are still used," said Steve Ellis, Chairman of NACHA and Executive Vice President of Wells Fargo & Company's Wholesale Banking Group. "As consumers and businesses continue to move from cash and checks to electronic forms of payments, financial institutions continue to find opportunities to provide their customers with value-added electronic services to collect checks."

Other forms of check conversion have been used by retailers and billing companies since as early as 1999. NACHA estimates that as many as 3.2 billion checks were converted into ACH payments in 2006, an increase of 36 percent over 2005. The existing form of check conversion in use at many retail locations grew by an estimated 60 percent in 2006.

"Back Office Conversion fills an important market need for efficient payment processing," said Elliott C. McEntee, President and CEO of NACHA - The Electronic Payments Association. McEntee also noted, "The existing method of converting checks at the point-of-purchase will still be available, and for many retailers this will continue to meet their needs."

Several requirements of the BOC rules are intended to ensure that customers are properly notified that their checks may be converted, that customer service contact information is provided, and that customers have the ability to opt-out. The notification requirements are consistent with those required by the Federal Reserve Board under its Regulation E.

Consistent with NACHA rules for other forms of check conversion, checks that contain auxiliary on-us fields or are written for amounts greater than $25,000 are ineligible for Back Office Conversion. These definitions provide simple and effective methods for retailers, billers and their financial institutions to identify checks that are not eligible for conversion.

Back Office Conversion also allows financial institutions to convert eligible checks received in image files to ACH debits. The same authorization and eligibility rules apply to this processing scenario - i.e., proper notice and contact information must be given, customers must be given the ability to opt-out, and checks with auxiliary on-us fields or for amounts greater than $25,000 are ineligible.

"For many businesses, Back Office Conversion will enable them to have a single process to electronically deposit all of their check payments with their banks," said McEntee. "At that point, banks can determine which ones are eligible for conversion, and the most appropriate way to clear each check."

To help businesses and financial institutions understand BOC, NACHA has authored a new publication, Guide to Implementing a Back Office Conversion Entry Program. The Guide provides ACH Network participants with specific economic, operational, legal, and risk management considerations that might arise when implementing BOC. The Guide is available at NACHA's Online Publications Catalog at http://pubs.nacha.org/echeck.html.

TPAtlanta strongly recommends that your company obtains and reads this publication before venturing into the BOC world. With businesses and the financial services industry gearing up for Back Office Conversion, NACHA's BOC Education Task Force has created a suite of tools, resources, and training materials for financial institutions and businesses to use and reference during the implementation phase of BOC.

"NACHA and its members are committed to educating the marketplace and consumers about check conversion," said Mark Tizzard, Payment Strategies Director of Wachovia, and co-chair of the BOC Education Task Force, the group that spearheaded this effort. "The training materials provide businesses, processors, and financial institutions with a tremendous amount of organized and interactive information to answer their customers' questions about Back Office Conversion."

"Several requirements of NACHA's Back Office Conversion rules are intended to ensure that customers are properly notified that their checks may be converted," said Peter Hohenstein, Senior Vice President of Bank of America, and the other co-chair of the BOC Education Task Force. "Even so, consumers may still have questions that either business or their financial institutions will need to answer."

So if you work for a company that is involved in Transaction Processing services for merchants, that provides Bill Payment services, or especially one that process checks or check images, then this new BOC offering from NACHA needs to be in your product mix.

Just another step for our industry as we move towards a less-check society!

Good luck in your BOC projects!

Calvin D. Johnson, Publisher
publisher@tpatlanta.com
Trans Atlantic Systems, Inc.