The Federal Reserve Bank of San Francisco is involved in numerous innovative initiatives to streamline the payments process. Many of these efforts leverage the existing Automated Clearing House (ACH) system in new ways:

EBIDS

Begun early in the year as a project to develop a prototype electronic bill presentment and payment service, the Electronic Billing Information Delivery Service (EBIDS) would expand the use of the ACH, using it to route and deliver billing and payment information to billers and their customers. The project involves enhancing the ACH network to deliver billing information and payment instructions to banks that can then post this information on their web sites as part of the bill payment services they offer to their customers. Although still in the concept stage, EBIDS will potentially add value to an already tried and trusted payments mechanism, and the project is now a joint venture with several other Reserve Banks.  

Treasury Point of Sale

Treasury Point of Sale (TPOS) is an initiative begun in the Fall of 1999 to convert checks that certain government agencies receive at the point of sale to ACH payments. This project, also in pilot phase, could eventually involve as many as 50 government agencies. During 2000, the Veterans' Administration Canteen Service, the Patent and Trademark Office, the Bureau of Engraving and Printing, and the Government Services Administration (GSA) began to participate in the pilot.

Two external companies are involved in the process: RDM Corporation, which supplies the scanner necessary to read check data, and eFunds Corporation, which provides the back-end processing required to create the ACH file that is submitted to the Federal Reserve. A TPOS transaction works as follows: A purchaser writes a check to a participating agency for services received. Instead of the normal check transaction, however, the purchaser signs an agreement acknowledging the funds will be collected electronically via the ACH. (Once the transaction is complete, the check is stamped "void" and returned to the customer.) The check is scanned through the RDM scanner, with data transmitted to RDM Corporation and processed onward to eFunds, where the actual ACH debit file is created. The file is then processed through the ACH, and the appropriate accounts are debited and credited.

Processing cost savings are potentially significant. Various studies show that it costs approximately twice as much to process a check as it does to process an ACH transaction. The most significant savings involve the elimination of certain paper, transportation, and check encoding costs. Other advantages include the ability to retrieve an image of the check later on, should the agency have need, as well as an ability to decline checks from customers who have a documented history of writing checks with insufficient funds.  

Simplified Giving

In 2000, the Bank launched the Simplified Giving Program as a pilot. This program encourages nonprofit organizations to offer direct payment as a method of collecting donations. Direct payment enables a nonprofit's donors to make contributions directly from their bank accounts to the nonprofit on a recurring basis. Anticipated benefits of this program are that the convenience of the payment method generally encourages more generous donations, and people who might otherwise donate on a one-time basis become sustained donors. Use of the program also will make the nonprofit's cash flow more predictable.  

Direct Payment Joint Promotion

Begun as a collaboration between various Federal Reserve Banks, ACH Associations, financial institutions, and billers, the Direct Payment Joint Promotion initiative encourages direct, automated payment of bills from customer to vendor or service provider.

While our District's project operates only in Northern California at present, each year new billers have been added; there are now 18. In 2000, web technology was successfully utilized to allow customers to enroll on line at www.directpaymentplan.com.

The first such project began 12 years ago in Hawaii, and in 1995, Pacific Gas and Electric (PG&E) Company and Bank of America expressed interest in starting a similar project in California. Initially, four billers participated: PG&E, Pacific Bell, the East Bay Municipal Utility District, and Great Oaks Water Company of San Jose.

Of the billers currently involved in the project, only three had existing direct payment programs. In the first year of operation, PG&E saw sign-ups 26 percent higher than from its own program. Efficiencies in enrollment processing, moreover, are achieved with volume.

A significant advantage for customers who participate in the direct payment service is that they know exactly on which day the payment will leave their checking account, which helps them predict their cash flows better. Likewise, the partic-ipating billers enjoy greater predictability in the timing of their cash flows than they do when customers mail checks. In addition, the cost of processing ACH payments is much lower than that of check payments.

There are plans to expand the program throughout the Twelfth District, and an effort to develop a standardized, national program is being led by the Federal Reserve Bank of Cleveland.