A BofA Banker Argues Against ACH-Based Debit Programs

With rising transaction costs leading many retailers to look at the automated clearing house as a less expensive form of electronic payment, at least one leading bank executive is publicly throwing cold water on the concept of proprietary retail debit cards based on the ACH. Jonathan Wilk, senior vice president for payments strategy and implementation at Bank of America, said in a speech Tuesday at a payments trade show that “the ACH wasn't well designed” for card-based point-of-sale usage, pointing to the protections against fraud loss and provisions for dispute resolution offered by credit and debit cards. “You could throw risk management on top of the ACH but that system exists already, it's called credit and debit cards,” Wilk told an audience attending the Bank Administration Institute's TransPay conference in Las Vegas. He did not mention any programs by name. Retailer-issued debit cards based on the ACH have emerged over the years as merchants look for ways to cut their transaction costs for electronic payments. Last year, a third-party program for retailers called Debitman, which also relies on the ACH, went live, undercutting transaction pricing for bank-issued debit cards secured by personal identification numbers. Debitman, whose cards are secured by PINs, has argued it features security at least as strong as that of signature-based and PIN-based bank programs, including zero liability for cardholders (Digital Transactions News, Jan. 29). Wilk acknowledges “tensions are as high as they've ever been” between retailers and banks over the costs of processing electronic transactions, but he says bank-issued credit and debit cards offer a better value proposition to merchants' customers. Speaking to Digital Transactions News, he said fraud occurring on bank credit or debit accounts is “easer to mitigate” for consumers than fraud on the demand-deposit accounts behind ACH transactions. “On the ACH side, we would correct it, but [consumers] would need to get a new DDA account number, whereas we can get a new card out pretty quickly,” he argued. Separately, the National Automated Clearing House announced today that statistics from the Federal Reserve indicate that the Fed's per-item cost to process paper checks is now almost five times greater than that of processing an ACH transaction. Because of steadily dwindling check volume, the Fed's processing cost per check in 2003 was 5.1 cents, up from 4.5 cents in 2002. The Fed processed 15.8 billion checks last year, down from 16.6 billion the year before. Meanwhile, its ACH processing cost declined to 1.1 cents from 1.3 cents. In 1995, the Fed's processing costs were the same for both paper checks and ACH transactions.