Making Electronic Check Conversion Pay

Converting paper checks to electronic deposits is a cumbersome and costly process for multi-lane stores. The new Back-Office Conversion (BOC) rule allows retailers to consolidate check electronification. (See story on page 172.) Despite the perceived promise of BOC, problems remain. Amy Gutierrez, VP, strategic market development for Atlanta-based NOVA Information Systems, talked with senior editor Connie Gentry about benefits of using a payment processor for electronic check services.

Chain Store Age: What are the pros and cons of BOC processing?

Amy Gutierrez: For multi-lane stores, BOC reduces costs because the retailer can purchase one electronic transfer device for a back office rather than outfitting each point of sale with the equipment. Also, the interaction between cashier and consumer is simplified because the retailer retains the check for BOC processing, vs. returning the check to the consumer and obtaining written authorization in a POP transaction. Unfortunately, BOC does not do everything that is needed. Specifically, BOC does nothing to mitigate the retailer’s risk of accepting a fraudulent check or to expedite collection of the payment.

CSA: How likely is it that a check will be fraudulent?

Gutierrez: Although the use of checks is actually declining, the risks associated with checks continue to rise each year. One reason the risks are greater is that most legitimate check writers have adopted electronic payments, such as debit or credit cards. Many people writing checks are doing so because they can’t qualify for credit, which makes the check itself a riskier form of payment. Our electronic check service (ECS) enables retailers to identify potentially fraudulent checks before the check is accepted by a cashier.

CSA: How does the ECS work?

Gutierrez: ECS combines the best of POP and BOC processing. Checks are scanned at the point of sale, using micro-check reader (MICR) technology, and the electronic transfer occurs in real time, when the check is presented by the shopper. Typically, any multi-lane retailer has a POS system that includes MICR technology, which means the retailer does not need to invest in additional technology for each checkout lane. With real-time verification of the check, funds to cover the check are automatically put on hold for that payment and are typically transferred to the retailer’s account within 24 to 48 hours, compared to the normal 48 to 72 hours required for deposits from POP or BOC processing. ECS minimizes the retailer’s risk and improves cash flow with sameday or next-day deposits. As with BOC, the ECS allows retailers to keep the checks and upload images of the checks in a centralized office location. With ECS this process is better defined as cash-office imaging, rather than BOC, because the actual conversion of the check to an electronic payment occurred at the point of purchase.

CSA: What happens if the real-time verification at the point of sale indicates a problem with the check, such as insufficient funds (NSF)?

Gutierrez: We have the ability to resubmit a check two times, and the retailer does not see the NSF until it has failed three attempts. When the Visa POS rail for DDA (direct- demand account) access is used, a “decline check” message appears if there are not sufficient funds to cover the payment, and the cashier can request another form of payment, similar to the process that occurs with declined credit cards. Retailers can also choose between flexible service levels, which can vary among the different stores in a retailer’s portfolio. For instance, stores that have a higher risk of receiving fraudulent checks would benefit from the highest service level, which guarantees payment to the retailer. Stores with predictably lower risk might opt for a verification service.

CSA: Does check verification during the ECS process add time to the checkout process?

Gutierrez: No, the check acceptance process is comparable to credit-card approvals. Additionally, ECS simplifies business processes beyond the checkout lane. For instance, ECS replaces labor-intensive reconciliation processes and manual deposits with automated transactions. It also eliminates the need for courier services to deliver deposits, often at multiple banking locations, and because electronic transfers can be directed anywhere in the country, the deposits can automatically be routed to a retailer’s corporate account. Retailers also receive improved reporting because electronic management provides a snapshot of all transactions; previously there was no way to track individualcheck transactions. Finally, we manage all of the compliance processes associated with electronic check conversion.