Financial Insights Finds Corporate Payments Are the Key to Growth for the ACH Network; Mid-Sized Banks Face New Challenges Competing for Payments Business

FRAMINGHAM, MA – December 23, 2004 – A new report by global independent research and advisory firm Financial Insights examines the growth of the ACH, the electronic funds transfer network behind direct deposit, electronic bill payment, and electronic check payments. Financial Insights finds that, while the ACH will continue to grow at a 13% compound annual growth rate from 2003-2008, reaching $47.2 trillion in total dollar volume, future growth will depend on the development of new payment applications, primarily in the area of corporate payments. Check conversion is one of the most important of these applications, and is expected to grow from nothing in 1999 to 20% of all ACH transactions by 2008 (see Figure). However, check conversion will stall unless corporate checks are allowed to be converted.

Financial Insights also finds that the benefits of the ACH growth have been captured primarily by the largest banks, which have the scale and pricing power to grab large corporate accounts from the regional banks. As check volumes decline by up to 5% a year, regional banks are finding it difficult to replace the missing revenue with new ACH business.

According to Aaron McPherson, research manager for payments at Financial Insights and the author of the report, "banks must be more aggressive about developing new ACH-based services, both in order to prevent encroachment by larger banks and non-banks, as well as to replace revenue being lost from check processing and cash management services. Business-to-business payments have the most promising growth prospects, but also represent the greatest challenge to banks to adapt. The ACH has the potential to accelerate the consolidation of the banking sector, by handing the largest and most aggressive banks the tools to steal market share from rivals."

The report, titled "The Changing ACH: Market Analysis and Forecast, 2003-2008," presents a five-year forecast of the ACH via four distinct applications: business-to-business payments, electronic bill payments, electronic check conversion, and direct deposit. It makes specific recommendations as to how mid-sized banks can preserve their payments businesses through creative product development.

For more information on obtaining this report, please contact: sales@financial-insights.com.

About Financial Insights, an IDC Company

Financial Insights provides independent research, custom consulting, and detailed multiclient studies on the technology issues and challenges facing the financial services industry. Our global research covers topics of strategic importance to corporate and retail banks, insurance carriers, asset management firms, securities and brokerage firms. Our local practices in Asia Pacific, Europe, and Canada add an in-depth regional viewpoint. Financial Insights, an IDC company, is headquartered in Framingham, Massachusetts, USA. IDC is a subsidiary of IDG, the world's leading IT media, research, and exposition company.

For more information visit: http://www.financial-insights.com

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