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Deep Diving for Hidden Treasure:

Discovering Additional ACH Origination Prospects Within Your Customer Base

By David Peterson, i7strategies

Do you want to get more business customers doing ACH origination with your institution? Strangely enough, many ACH professionals might answer, "We don't want to push ACH origination; that would be a lot more work for us!" When a financial institution realizes they must actively promote ACH origination to all companies that would benefit from its use, the question arises: "What type of business makes a good ACH originator?" What type of company, when presented with the numerous benefits of ACH origination, would want to utilize the service? To answer those questions, you need to examine several criteria and then apply them to your business customers. I do not believe there is a one-size-fits-all approach to ACH origination given the myriad ACH transaction types and how businesses may use them.

Let's start with the ACH transaction types, focusing on categories rather than individual types. Direct Deposit, or business-to-consumer credits (PPD), is a category unto itself. The same applies to recurring Direct Debit transactions, or business-to-consumer debits (also PPD). Even if a company is likely to do both Direct Deposit and Direct Debit, you would be talking to different departments within the company. These opportunities are truly the low-hanging fruit. Corporate debits and credits are a viable source of ACH transactions and can represent dramatic cost reductions for a company using wire transfers and corporate checks for payment instead of a corporate CCD ACH debit or credit. Next would be consumer debits that are authorized in a manner other than in writing-TEL and WEB transactions. These transaction types have been much maligned, and as a result, many FIs automatically refuse any potential originator that would benefit from them. Finally, we have checks deposited as ACH debits, including ARC, BOC, POP, and RCK. Due to the confusion over which transaction type to use and the differences in the rules between these types, many financial institutions avoid discussing ACH check conversion. There are more ACH options, but for the purposes of this discussion, we will focus on these five categories.

Identifying Direct Deposit customers is the easiest job. The more employees a company has, the bigger the savings for converting payroll checks into ACH credits. But, dig a little deeper, and you can find several other important indicators. Regardless of employee count, ask these additional questions: 1) Does the business have remote locations? 2) Do they operate with multiple shifts? 3) Do they send paychecks via an overnight delivery service, or do employees ever make special runs to deliver checks to other locations? What about companies writing checks for expense reimbursements or sales commissions, or those depositing periodic payments from annuities or structured settlements? By expanding your thinking about what companies are likely to be doing as a substitute for consumer ACH credits, you can identify good ACH prospects that are current customers.

What about Direct Debit? Once again, many look just to the number of potential debits to determine viability as an originator. But there are other factors to consider. The lower the regular monthly payment, the greater the impact of a low-cost ACH debit-for example, the cost to mail and collect an attorney's bill of $5,000 is the same as a $25 self-storage unit. But the benefit of using ACH has more impact for the self-storage business. These businesses are a good example of another important factor, which is convenience. Is anyone available during business hours to accept payments? ACH offers such a great value over any other form of payment that there is literally no type of business that would not benefit by converting traditional payments into ACH debits.

Corporate transactions generally fall into two categories. Many companies move funds between related accounts. For example, a company with 12 regional locations may consolidate deposits daily to a master account. This cash concentration involves both CCD debits and credits. This process is more common at your business customers than you might imagine. The other CCD opportunity is where a company uses ACH to either collect from or pay business partners. These types of ACH transactions represent one of the fastest growing methods of business-to-business payments.

Consumer debits that are authorized on the phone and on the Web should not be eliminated from your supported ACH transaction types. While many consider these to be "high risk" ACH types, the fact is your business customers will get these services from a third-party service if you refuse to provide them. All that does is distance you from your customer and might eventually lead to losing the whole relationship. WEB and TEL transactions do have risk, but it is not unreasonable risk. Like with any other ACH transaction, the risk can be identified and managed with proper procedures and operational controls. If a company wants to allow customers to call in and make a payment to avoid a company-initiated late charge, for example, creating a TEL transaction benefits both the company and their customer at a reasonable cost. Similarly, more companies are offering products and services online. If an authorization for an ACH payment occurs during an Internet session, it is a WEB transaction, and you should be empowering your businesses that are online with this transaction type.

The opportunities of check conversion to ACH are numerous. Companies that accept a large volume of consumer checks are clearly a check conversion prospect. (Note that many, but not all, business checks are not currently allowed to be initiated as ACH check conversions.) Yet, even companies that have few checks may be interested, depending on how they receive check payments and how convenient it is to deposit those items. Unfortunately, most FIs have aggressively pushed a remote capture solution that creates Check 21 transactions over ACH check conversion. In part, this may be due to confusion over the different check conversion ACH transaction types. Even if you understand all of the differences, your business customer may not. I would caution against abandoning support and promotion of ACH check conversion altogether. At a minimum, focus on the one or two check conversion types that seem to fit most of your business customers. POP is strictly done at the point of sale and is often integrated into the cash register or credit card terminal. Moreover, all checks that are presented at the point of sale can be taken into the "back office" and scanned, resulting in BOC ACH transactions. Checks received in the mail or drop-box can be converted into accounts receivable conversions, or ARC transactions. By focusing on ARC and BOC, you can eliminate confusion without a noticeable loss of deposit offerings. Or, just pick one or the other as they are practically identical, and no one will ever know how the customer happened to present the check. Simple is better!

We have discussed the types of transactions and the types of companies that might benefit from ACH. So how do you take advantage of this information and look into your database of existing companies to determine which ones would make good originators? Using your core report-writing capability, print a list of all companies sorted from highest to lowest monthly deposit volume. This list should give you some indication of the type of company. Next, you need to know what kind of business each customer represents. You could do this manually; however, if your system tracks companies by SIC or NAICS codes, you can print a business customer list by the SIC or NAICS codes. This report will group businesses into similar classifications. The businesses that have low dollar-value payments (e.g., self storage units, health clubs, tanning, video rental, pest control, etc.) are prime candidates for direct debits. Using the combined knowledge of all of the institution's employees, determine an estimated number of employees at each company and whether they run multiple shifts. For example, a school system has a lot of employees and is a prime candidate for Direct Deposit, but the hospital has a lot of employees and runs three shifts, an even better prospect.

Again, using the core system resources, sort all your business customers by the number of checks they deposit. Unless a business takes mostly business checks, if they are depositing any significant number of items, they are a check conversion prospect. Check with your wire department and find out who is doing a lot of wires. They are candidates for CCD transactions. And if you are wondering why you would want to offer a lower-cost ACH substitute over an expensive wire, remember that if you do not bring ACH to your customer, your competitor will.

As for potential WEB and TEL opportunities, you may not be able to learn about them without asking some questions. Ask the loan officer who handles the line of credit. And, you can certainly survey your business customers about the types of transactions they currently perform and use that to identify ACH prospects. Or, you can hold periodic in-person meetings and gather feedback. Often, the best opportunity to ask a couple of questions is when you encounter business owners that happen to be in one of your offices. It is amazing what you will learn from your customers if you ask. Remember that, in the end, every current transaction your customer replaces with an ACH transaction likely represents a cost savings to the business. You are not bugging them about ACH; instead you are bringing them information on a key element that will assist them in containing costs while improving efficiency.

Change the way your institution views ACH origination and actively seek opportunities within your current customer base. Not only will your efforts lead to increased fee income and core deposits, but you will cement business relationships. A good relationship makes it less likely your business customer will leave you for another financial institution or third-party competitor. Getting new customers is nice, but keeping the good, profitable relationships you already have is less expensive.

Have a great diving adventure!