January 09, 2001, 2:23 PM — It's called the Automated Clearing House network, and for about three decades this private nationwide X.25 data-processing system has been a workhorse pumping billions of dollars in collections payments between thousands of U.S.-based banks.
Employing ACH terminals to connect to the system, corporations use ACH for payroll direct deposit to employee bank accounts, and to credit or debit business partners' accounts, thus avoiding the use of paper checks. Though it's a dated, unglamorous packet-switching technology, ACH has long held the aura of a network used by the power elite.
However, that's about to change as the U.S. Department of the Treasury grafts a Web front end onto ACH, which will for the first time open its use to the common man and smaller businesses.
The goal is to get regular citizens to pay taxes, loan repayments, national park permits -- basically any fee owed the government -- via this Web front end instead of by check. The Web site -- www.pay.gov -- will be opened by the Treasury Department early next year.
"This is a service to the citizens that allows them to interact with the government online," says Gary Grippo, director of e-commerce at the Treasury's Financial Management Service division, which is spearheading the project. "We want people to come to the government Web page and say, 'You can debit my account to pay us, the government.' We get the authorization from you over the Web and then take the money from your account."
Every financial institution that offers checking accounts can handle ACH payments. The idea is that at www.pay.gov the individual could designate a checking account where deductions can be made for paying what is owed to the government, then fill out Web forms to pay these bills. The Web ACH payment would be processed in one day, as opposed to three for paper checks that are mailed.
Banks are preparing for the change. The bank group called the National Automated Clearing House Association, which sets rules for ACH processing, recently passed new ones related to Internet-based ACH payments. Each payment is sent as a message, and the new rules now include an "Internet" entry-claim code if the payment message was authorized over the Internet.
The Treasury Department is the largest ACH operator, processing 75% of all transactions, with Visa International -- its main competitor -- doing most of the rest. Visa and the Treasury Department do vigorously compete, Grippo says, but the Treasury Department is required under regulation to price services at cost so to not unduly affect the market.
"ACH is an old X.25 network, but we're trying to put an Internet front end on it to give more people access to it," Grippo says. Mellon Bank, Bank of America, BancOne and First Star are among the banks involved in the first tests of www.pay.gov this month.