The Future Of Check Processing
Integrated Solutions For Retailers
January 2007

Checks and ACH (automated clearinghouse) transactions are the least expensive payment transactions for retailers. What other benefits do they provide?

Although consumers will write fewer checks this year than last year, they’re still writing checks and completing debit transactions. Therefore, retailers continually search for secure, swift ways to process those checks and/or ACH transactions. Alex Bacon, VP of sales and marketing for EFT Network, Inc., a check and ACH transaction processing solution provider, and Erica Moon, accountant for Mathis Brothers, a furniture retailer, discuss the benefits of processing ACH transactions and the future of check processing.

How do check/ACH payment processing options benefit a retailer?
Bacon: For processing, checks must first be converted to ACH transactions. There are two types of check-to-ACH conversions: POP (point of purchase) and BOC (back office conversion), the latter becoming available in March 2007. There are significant differences between POP and BOC. POP requires scanning (and, thus a separate scanner) at every checkout lane, a receipt to be printed and signed, and the check and a copy of the receipt to be given back to the consumer. With BOC, the need for a scanner at each checkout lane is eliminated, as is the need for a signature (authorization is considered complete by posting a sign at the POS stating that checks may be converted, and consumers have the right to opt out, but transactions do not require authorization and/or a copy of the notice presented to the consumer). BOC allows the retailer to scan checks in the back office for bank transmission, hence the name BOC.

While POP slows the checkout process and is limited to consumer checks only, retailers benefit due to faster notification of returned transactions. Faster notification facilitates timely updates to negative check writer information in check verification systems. There is also no longer a need to deposit the physical check with POP. In comparison, BOC does not slow the checkout process because it still completes check verification at the checkout lane, but it eliminates immediate, time-consuming scanning. With BOC, retailers can continue to accept checks as they did previously, but process and deposit all paper checks electronically in their back office environment, which eliminates bank visits.

Overall, electronic check processing solutions enable a less expensive alternative to processing checks over paper processing. These solutions reduce time and costs associated with accepting, transporting, and preparing deposits for the bank, and they speed the notification of returned checks for verification/database updates. The larger the volume of checks, the greater the savings.

Moon: Using ACH processing, we have access to the income from checks much faster. Our checks are sent to consumers’ banks more quickly than if we were to paper deposit the checks through a bank, which then sends them to the consumers’ banks for processing. Within days, we learn if a check is returned due to insufficient funds, so the overall turnaround time is much faster. We get our funds deposited more quickly with the EFT Network solution than if we were to use a bank drop box or armored vehicle service. We also benefit from paperless processing, as no deposit slips are involved. This provides a greater level of security for our customers and for us because we can destroy the physical checks after a designated number of days following processing.

What are the most important features a retailer should look for in a check processing solution?
Bacon: Retailers should seek the following features:

Moon: One of the important things we have found at Mathis Brothers is having an actual image of the check. If you are searching for a processing company or seeking a solution, ask yourself:

How do you think check/payment processing solutions will change in the future?
Bacon: Checks, while quickly becoming eclipsed by other electronic payment technologies, still appear positioned for existence in the near future. It’s a fact that many consumers don’t qualify for credit cards and may have limited access to debit cards. Furthermore, continued increases in credit card exchange/discount rates are forcing many retailers to reexamine their cost of accepting credit cards, which may make them focus more heavily on check acceptance.

The problems surrounding this include measures to simplify check acceptance and clearing, or alternate the means of debiting a checking or savings account for a purchase (in lieu of a paper check). This may involve greater use of private network direct ACH debit cards. It will include finding more efficient processing of checks at the POS, verifying whether the check is likely to bounce, and providing an efficient means of depositing the funds to the merchant’s depository account.

Moon: The possibility exists that capturing the image of the check will no longer be acceptable due to rules changing, but this could hurt many businesses. I think companies will make check clearing easier and more secure for retailers as consumer information is gathered and continually updated.

How can check/payment processing solutions of the future protect retailers against fraud?
Bacon: In terms of fraud, it really comes down to two exposures. Verifying whether the person writing the check has the authority to issue the check as a debit to the noted account controlled by them and whether the person cashing the check (as in a payroll environment) is the person to whom the check is written. Merchants accepting checks will have a greater duty to verify or prove the identity of the check writer or check casher. There are very sophisticated fraud detection programs evolving in the marketplace, among which include biometric measures to verify the identity of a specific check casher. There are also several solutions available today that provide check routing and account number verification. Greater use of these technologies will help protect merchants against fraud.

Moon: Maintaining current consumer information and keeping data that is shared with other retailers up to date is imperative. Working on a way to verify funds upon authorization to eliminate counterfeit checks from processing would protect retailers against fraud. Scams could also be reduced by having consumers’ names linked to account numbers so that you can verify that the consumer belongs on that account (similar to what credit card companies do now when consumers use their credit cards, such as printing their names on receipts).

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