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Electronic Debits Help Improve Bill Payment

Accounts-receivable check conversion lets companies collect funds more efficiently
A method to convert consumer bill payments from checks into electronic transactions, known as accounts-receivable check conversion, is gaining favor among credit-card issuers, utilities, mortgage companies, and other bill-payment collectors. Nearly 60 million such transactions were processed in the third quarter this year, almost twice the amount processed in the previous quarter, according to the Electronic Payments Association, which sets the rules for these transactions.

Introduced last year, ARC conversion is a boon for banks; as processors for billing companies, they're expected to reap between $110 million and $154 million in additional payment fees from offering conversion services. J.P. Morgan Chase in the last few months has signed its first two large customers for its ARC service, and KeyBank is processing a million such transactions a month. Mellon Financial Corp., which piloted a check-conversion service earlier this year, is rolling it out to clients eager to cut the time needed to collect funds by up to half.

With ARC conversion, a check is changed into an electronic debit against a consumer's bank account. As a result, the billing company gets paid in a day or two. It's also less likely to have an item returned unpaid because paying banks give electronic debits priority over checks. "Payments that get ARCed get first dibs on the checking account," says Steve Hooper, Mellon's VP and product manager of E-payments. Consumer opposition to ARC conversion has been minimal, but banks are considering letting them opt out.