POP’s Still on a Roll a Year After BOC’s Debut

Some observers speculated that the point-of-purchase, or POP, electronic-check code would go “pop” after the supposedly more merchant- and consumer-friendly back-office conversion (BOC) code debuted in March 2007, but the latest automated clearing house volume numbers show otherwise. POP posted 115.3 million transactions in the first quarter, up 48.7% from 77.5 million a year earlier. In contrast, BOC generated 3.67 million transactions, just 3.2% the size of POP's volume, according to quarterly figures from NACHA?The Electronic Payments Association, governing body of the ACH. NACHA's statistics for its e-check applications do not include on-us volume. True, BOC's year-over-year growth rate is huge, but it comes off a tiny base of 17,121 transactions in 2007's first quarter. Apart from BOC, POP's growth rate well surpassed that of any of the other 11 publicly reported ACH categories. POP continued a run in the first quarter that began in the second quarter of 2006 following a mediocre two years (Digital Transactions News, Sept. 13, 2006). Wal-Mart Stores Inc., the world's largest retailer and a POP deployer, is responsible for a big share of POP's recent run-up, but small and mid-sized retailers are now adopting the application, Elliott C. McEntee, chief executive of Herndon, Va.-based NACHA, tells Digital Transactions News, confirming earlier reporting by this newsletter (Digital Transactions News, May 22). Both POP and BOC allow retailers to convert paper checks into e-checks at the point of sale. Many merchants initially viewed POP as expensive and cumbersome because of the need to equip checkout lanes with check scanners and to train workers about the code's requirements, as well as the need to get explicit customer approval for the transaction. In contrast, BOC allows check conversion in the back office and doesn't need the customer's upfront OK. Wal-Mart, which now has more than 3,000 U.S. stores equipped for POP, “destroyed two myths about POP,” McEntee says?that employee training was onerous and that POP would slow checkout lanes. Other retailers waited for BOC to go live, compared the two, and ultimately decided to go with POP, he adds. Those reasons, coupled with the overall decline in check writing, mean BOC volumes will fall short of NACHA's early predictions for the application. “The growth has been slower than we expected,” says McEntee. Still, BOC enhances NACHA's aim of giving merchants, banks, and processors more choices, according to Jan Estep, NACHA president and chief operating officer. “From a NACHA perspective, we do want to make the ACH network a good utility as an electronic-payment mechanism,” she says. “Our expectation is that [BOC] will continue to increase. A combination of evaluation and implementation [by merchants] does take some time.” BOC did post an 18% increase in transaction volume from the fourth quarter's 3.08 million while POP posted a 14.1% drop from 134.2 million, but McEntee and Estep attributed the decline to seasonal factors. After BOC and POP, the e-check code with the strongest year-over-year first-quarter growth rate was WEB, for Internet transactions. Most are electronic bill payments. WEB posted 497.9 million transactions, up 20.3% from 414.1 million in 2007's first quarter. ARC, the accounts-receivable conversion code for lockbox payments, grew 5% to 703.8 million transactions in the first quarter from 670.1 million a year earlier. TEL, the e-check code for payments by telephone, had 89 million transactions, up 10.2% from 80.8 million in the prior-year quarter. Total ACH volume grew 8.3% to 3.71 billion transactions from 3.42 billion in first quarter 2007. Quarterly figures for POS, the point-of-sale code for transactions originating with debit cards, were not available. The obscure code came into the spotlight last year when Capital One Financial Corp. began testing so-called decoupled debit cards that used the ACH to withdraw funds from cardholders' checking accounts at other financial institutions (Digital Transactions News, Nov. 27, 2007). POS volume has been running at about 20 million transactions annually for a number of years, says McEntee.