Integrating ACH and Point of Sale
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The attack on Interchange is intensifying from all sources: individual merchants, 
retail organizations, federal and state regulatory entities.   To borrow a phrase from 
CNN pundit Jack Cafferty, “It’s getting ugly out there.”

It’s clear to all parties that “this is the way we’ve done it for years” is no longer an 
effective justification for Interchange fees.  Several of the original reasons for 
Interchange (the 30-day float comes to mind) don’t even exist any longer.  
Reasons that might otherwise be valid are contradicted by wildly inconsistent 
talking points.  Example:  “Interchange helps to cover losses from fraud, which 
are growing.”  In fact, legislators and the merchant public receive highly conflicting 
reports about whether fraud losses are increasing, or moving lower.

The one thing we all know is that IC is a profit center for issuers, and little, 
if anything more than that. Like wine distributors who contribute little, yet fight 
tooth and nail to protect their turf and prevent direct sales, IC collects money, 
and provides virtually no added value.  As they say, nice work if you can get it.

Also, there is no good reason merchants should be forced to fund reward programs.  
This should be the responsibility of the cardholders or banks – or both.   The only 
reason to charge the merchants for this is that they can.

ACH at the point of sale is a considerably lower fixed cost-per-transaction alternative.   
Check cards issued by the card associations is a step in that direction, but, to date, 
these continue to have credit card fees and interchange attached to them, and 
much of the rationale behind IC does not hold water relative to check card.

One way for integrating ACH at the point of sale is through a terminal or POS system.  
Like a check, ACH has a fixed cost to process, and it is actually less than a check, 
and much like a paper transaction of 20 years ago.

There are several hurdles that prevent this option from gaining traction. 
One hurdle is the “chicken-egg” issue of cardholders and merchants: which 
comes on board first?  Cardholders have no utility without merchants.  The 
Discover card coming to market is one excellent case study of strong simultaneous 
action to enlist cardholders and merchants who would accept those cards.  
This, however, requires deep pockets.

Revolution Money and Tempo have the systems in place and, if capitalized properly, 
can pull it off.  Tempo Debit™  is a stand-alone, decoupled debit card that settles 
through the ACH, and is a comprehensive solution that enables ACH-based, 
decoupled debit programs for issuers.

Capital One’s short-lived, decoupled master card-bug ACH card could have been 
the springboard to move ACH at point of sale into the mainstream.  Explanations 
for its demise have never been credible to me.  One reads that it was a test, 
information was collected, and it was discontinued.  I believe there is more to it, 
and that this could have been the catalyst to bring ACH to the point of sale.

An additional hurdle is the need to have some form of credit overdraft protection 
linked to the ACH, as checking accounts do, in order to prevent the decline of many
transactions.  And, there’s a real quandary with post-consumption transactions such 
as those in restaurants.  This is a significant hurdle: you need a method for determining 
whether the cardholder lacks overdraft protection or is approaching a spending limit.  
You need the ability, at the point of sale, to confirm the availability of cash.

So, cardholder and merchant acceptance is a hurdle.  And the issue of 
post-consumables and balance-checking is another.  Security, of course, 
is a third concern.  Because this system provides direct access to cash, it has 
to be pin-based, and cannot be signature-based.  And unlike credit cards, in my 
view, the cardholder must bear responsibility for security.  There can be no 
“zero liability” as there is with credit cards.  Cardholders are responsible for their 
wallets and checkbooks, and this is no different.  Cardholders, not banks or other 
entities, must assume responsibility.

A fourth hurdle is how to provide the benefits of ACH to the unbanked.  
Like Western Union and similar money transfer companies, there is a real 
opportunity for a quasi-regulated, managed monetary system outside the banks.  
Non-citizens are justifiably leery of banks, because they charge high fees, and 
charge to give them their own money, and some of that needs to change.

Electronics has lowered the costs of everything, but fee structures continue to 
be based on the antiquated, long-gone paper-based way of working.  Yes, it needs 
to be regulated and managed, so that customers have the assurance their money 
is safe and is not being fee’d to death.  Also, a degree of anonymity is considered an 
advantage.  I believe it can be worked out.  There is a huge benefit of having cash –   
without cash.  Those kinds of financial structures thrive today in various ethnic 
environments.  Among those of Middle Eastern or Asian descent, they’re known 
as hundi or hawala; among the Chinese, it’s Fei ch’in.

The underground economy is clearly here to stay – official estimates put it at 
20-30% of GNP. It would hardly be surprising if this secondary economy grew 
further in light of the 2008 meltdown of the main one.  So, let’s acknowledge it, 
and create a way to work with it and improve it.

But, what’s in all this for the ISO?  If you are a trusted outsider working with 
underground ethnic communities to understand their needs and help them 
work to provide services and support to the unbanked – to provide them the 
best of both environments – that’s a huge opportunity.

There is no more effective way to serve both merchants and cardholders, than to 
broaden acceptability, and financial flexibility, for these groups.  But main-streaming 
must be done gradually, and issues of anonymity, regulation and trust must 
be addressed.

As with society in general, the critical hurdle is universal acceptance. In this case, 
the answer may lie outside of the traditional card associations.  The answer might 
also be a hybrid of an existing monetary system.  Or, it may be a spin-off of how 
the official banking system operates.

All of these create opportunities to reduce costs for the merchant, and create a 
wider use of their services and products by people who would normally not have 
been patrons, because of how they had to pay.  Limited payment options are an 
obstacle for many groups, but the larger challenge is reducing transaction 
processing expense.  2.5 percent per transaction face value – higher for some 
transactions – is an enormous burden.  And it’s higher with each swipe of a 
reward card, or completion of a phone or internet order.

Facilitate a solution, and merchants will ring up additional sales, lower processing 
costs will allow merchants to serve a larger portion of the buying public, and 
embracing the underground economy will benefit everyone.

Will ACH at the point of sale ever be realized?  It’s anyone’s guess, but I have 
higher hopes than I do for chip and pin, because it leverages tools and technology 
that is already in place.  And has substantial recurring benefits for virtually 
everyone in the room.


Biff Matthews is President of Thirteen Inc, the parent company of 
CardWare International.  He is one of 12 founding members of the ETA, 
serving on its board, advisory board and committees.  (740) 522-2150.