The Broken Link - Digital Transactions

ACQUIRING
February 2008 digitaltransactions
The ACH Comes
to the Cash Register
Linda Punch
It’s taken some time, but retailers of all sizes increasingly are
embracing electronic check alternatives. The reasons: new technology
and a push from processors.
What a difference a few
months can make.
In early 2007, electronic
check conversion appeared to
be stuck at the starting gate. Despite
the launch in March of back-office
conversion (BOC), the most recent
version of electronic check acceptance,
many retailers beyond a dedicated
few seemed hesitant to adopt
BOC or any other electronic check
conversion option from the automated
clearing house.
But all that changed in the last six
months of 2007, according to some
merchant acquirers, terminal vendors
and industry observers. Merchants not
only are more aware of e-checks, an
increasing number—including major
retail chains such as Hy-Vee Inc. and
Meijer Inc.—are adopting some form
of electronic checks. And based on
what commentators said at October’s
annual meeting of the Association
for Financial Professionals in Boston,
Target Corp., The Home Depot Inc.
and Kohl’s Corp. are taking serious
looks at BOC.
“There are more merchants looking
at [check electronification] and moving
into that realm,” says Paul Rupple,
director of marketing for Digital Check
Corp., a Northfield, Ill.-based provider
of check-scanning equipment. “It’s still
the larger ones at this point although
it’s starting to migrate down to the
smaller ones as well.”
MagTek Inc., a maker of card readers
for ATMs and point-of-sale devices,
is seeing demand for devices that read
the MICR and the check, says John
Arato, vice president and business unit
manager. “There’s certainly a move
toward back office conversion and even
remote deposit,” Arato says. “There
are so many more companies out
there, as well as banks, selling remote
deposit services to large volume checkaccepting
merchants and retailers.”
This long-anticipated merchant
awakening comes at a time when some
in the industry feared e-checks at the
point of sale might never take off, in
part because check volume is declining.
Until recently, even the launch of
BOC, which addressed many of the
objections merchants voiced about
earlier forms of e-checks, appeared to
have no effect.
“If you’d asked me [a few] months
ago, I would have said these are all too
little, too late,” says Robert Meara,
senior analyst in Boston-based Celent
LLC’s banking group. “Retailers are
not going to invest money in a small
and declining percentage of their POS
mix when there are much bigger fish
to fry—[payment card] interchange
rates and that kind of stuff. But I was
proven solidly wrong.”
As check volume declines, the
per-unit cost of processing the paper
increases, says Tom Kettell, strategic
business manager, emerging markets,
for payment-processing hardware manufacturer
Epson America Inc. “Retailers
and their corporate offices are looking
for more economic ways to process
those checks and that has been the catalyst
for e-checks,” he says.
Making POP Work
Processing checks still represents a
substantial cost for merchants, particularly
large retailers, Meara says,
adding “while the pain is less acute
than it was, it’s still millions of dollars
in potential savings.” As a result, electronic
check conversion is “passing
muster in terms of internal businesscase
hurdles at quite a few dozen of
the top 100 retailers,” he says.
Hence, Celent predicts e-check
volumes are about to take off (chart,
page 16). This growing interest in
electronic check conversion also can
be traced to innovations in e-check
technology that address merchant
concerns. For example, apart from
Wal-Mart Stores Inc. and some others,
most large, multilane retailers
have been reluctant to adopt point
of purchase (POP), an older form
of e-check conversion, because it
14 • digitaltransactions • February 2008