ACH, ATM, POS --
they're here to stay
It is remarkable that so many bankers perceive ACH services and other forms of electronic funds transfer as an option which they may or may not choose to offer their customers.
This perception must be challenged on the grounds that in time the ACH, point-of-sale and automated teller machine delivery systems will be as fundamental to banking as checking, savings and loan accounts. Their value cannot be overstated, because they will be instrumental in fighting problems caused by the high cost of check processing, the advent of NOW's and interest on demand accounts, and the continuing need for new business.
Although there have been remarkable improvements in the overall processing of MICR encoded items, the amount of labor associated with check processing remains high, while productivity is low. The truth of this statement is demonstrated by these figures: 28 billion checks are processed annually, at a rate of 404.7 checks per man-hour. The resulting costs are extremely high, ranging between 16 cents and 30 cents per check.
At present, the ACH, ATM and POS delivery systems offer the only hope of diminishing these costs. These transactions are direct replacements for checks, and because they are electronic, they are more easily and quickly processed than paper.
In addition to the costs associated with check processing, there are others that will arise with the offering of NOW's and interest on demand accounts. There appears to be little question as to whether NOW accounts will come. The question is when. The American Banker reported on April 19, that Senator Mcintyre, D., N.H., indicated that legislation granting NOW powers to all financial institutions nationwide had an excellent chance of passing in the Senate this year. In addition, Arthur Burns, chairman of the Fed board of governors, has given considerable impetus to NOW's through his endorsement of these accounts on a nationwide basis.
Advocates of financial reform are also supporting the concept of banks paying interest on demand accounts. When these are implemented, the immediate effect will be diminished interest income and increased processing costs, simply because these changes cannot be accommodated in most present savings and check processing systems.
The NOW accounts also provide thrift institutions with the means to acquire third party transfer powers. This, coupled with diminished interest income, will create a need for banks to develop new business. At that point, ACH, ATM and POS delivery systems will be needed. They will be called upon to reduce operating expenses and provide the opportunity for new services, and thus new business.
In considering the various electronic delivery systems, it is important to realize that legislation and consumer acceptance are not sufficiently developed to institute POS systems, and branching considerations have made it difficult to install ATM's beyond the immediate geographical boundaries of the principal banking structure. The ACH is currently the only fully operational processing mechanism.
The others must be developed, and to do so will require an industry-wide commitment, and a well coordinated and balanced effort. It will be to our advantage to give it our best.
THE MOUNTAIN STATES BANKER for May 1977 Page Fifteen
