Billers Embrace ARC

What explains the explosive growth of accounts receivable conversion (ARC) in just three years? One reason is that large corporate billers — who have lots of customers and collect lots of consumer checks — are generally the most receptive to having their items converted. So, unlike the slow work of winning over retail direct deposit customers one at a time, aggressive ARC banks are scooping up thousands of additional transactions with each new corporate customer.

Case in point: Mellon Financial Corp. began offering ARC services in December 2002, starting out with just one large telecommunications client for whom the bank was converting more than 200,000 items per month. Within a year, as more corporate customers warmed to the service, the Pittsburgh-based company was handling more than 5% of the nation's total converted items from less than 15 customers, says John Lucas, product line manager for Mellon Global Cash Management's electronic services.

"We've had unbelievable growth quarter over quarter," Lucas says. "Most of our proposals to prospective customers include instituting ARC from day one."

But the driver is not always a bank. Many large billers are pushing for ARC as a means to an end: faster notification of returns, lower bank fees and improved collection on returns. In addition, they "see ARC as more favorable than image exchange," according to research by Global Concepts Inc., largely because it's available and helps billers realize cost savings now — they don't have to wait for banks to implement image exchange networks. High-volume billers, which have more to gain and are more educated about ARC, especially favor conversion. Respondents to a 2004 Global Concepts survey projected their ARC volume would double over the next two years, from 26% of total volume in 2004 to 52% by 2006, reports the Atlanta-based payments research firm.

"There's indeed a great deal of demand for ARC among billers," and particularly billers that have a large national consumer customer base, says Steve Ledford, CEO of Global Concepts.

Alan Koenigsberg, vice president and global ACH senior product manager at J P. Morgan Chase Treasury Services, who helped implement a conversion program at American Express Corp. in 2003 before joining Morgan Chase, says that some of his bank's corporate clients have recouped "18 or 19 times their investment" in ARC within a year. The gains come from quicker identification of fraud and other risk management controls, according to Koenigsberg, who notes that credit card companies and mortgage lenders were among the technology's early adopters.

Many bankers and billers initially shied away from check conversion fearing that it would alienate consumers. But to date, banks are reporting little in the way of negative impact. A recent ARC performance survey of 34 receiving depository financial institutions, conducted by NACHA, found that only one respondent reported "significant" ARC-related customer-service issues.

— Karen Epper Hoffman