By Michael F. Carmichael
March 3, 2011
Starbucks has rolled out an application for smart phones that allows a barista to scan a barcode on the phone which immediately debits the customer’s account – seemingly endangering yet another way to pay for things: the credit card.
Cash, on the other hand, still seems to be acceptable – at the moment.
For some of us it was not all that long ago that another way of dealing with cash was something called a “check.” It was a piece of paper that promised you had cash in the bank that would be earmarked as payment to the person or company to which you handed it. They, in turn, could deposit the check in their bank and, after a waiting period of up to several days (called the “float”) and sometimes long physical journeys between banks, the amount of money written on the check would appear in their account (and removed from yours).
In 1974, an organization was formed by the nation’s banks and the Federal Reserve that created a process for transferring those checks electronically. It was called the Automated Clearing House (ACH). Not long afterwards several trade associations formed, made up of local banks and credit unions, to help them understand how this new-fangled process actually worked and what it meant to them.
| Ann Smith, president and CEO of The Payments Authority. |
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Ann Smith, of The Payments Authority – one of those trade associations – explains that the ACH was a “payment platform, established essentially by the Federal Reserve Bank. It provided a platform that enabled financial institutions to send electronic transactions that were effective tomorrow.” The “tomorrow” is significant because, as Smith explains, there were other ways to move those transactions along much faster.
“A wire transfer is going to occur today,” Smith says. “And, you pay for the timeliness of that transaction.” It can be, she says, “$15 to $40. In 1974 the Fed said that ‘wire transfer is still very important, and there are still industries that need that. But let’s create a more cost-effective electronic means for moving money throughout the country that would be a next-day transaction. It will be lower cost, but just as safe and secure as the wire system.’”
“Most consumers,” Smith points out, “recognize the ACH as the platform for direct deposit transactions. Payroll, pension or Social Security benefits, maybe a tax refund – those are examples of direct deposit transactions made possible through the ACH.”
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