The Broken Link - Digital Transactions

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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
typically required retailers to equip every lane with a check scanner. In addition, merchants using POP are required to get explicit customer authorization for the transaction and to return the voided check. But the BOC rules give retailers more flexibility in how they handle imaging of the check, says Amy Gutierrez, vice president of strategic market development at Nova Information Services, the merchantacquiring unit of Minneapolis-based U.S. Bancorp. BOC enables merchants that accept checks at the point of sale to convert them into electronic debits by scanning them in their back office for submission to the ACH network. Herndon, Va.- based NACHA, which governs the ACH, views BOC as a supplement to POP. The BOC rules have “really opened the doors for a lot of the larger retailers, especially in a multilane environment, to make a POP solution work,” Gutierrez says. “We’re seeing more and more market demand from the retailer community, especially the very large multilane retailers that are national.” Acquirers now offer solutions that eliminate the need for purchasing new equipment for check conversion at the point of sale. Nova, for example, has built its e-check conversion products on the backbone of its credit card processing system. “Our network infrastructure is supporting debit and credit card processing,” Gutierrez says. “And the point-of-sale terminals that we certify now take electronic check transactions. Basically, we offer a full payment solution for a merchant or business to be able to take all of their non-cash payments directly through Nova network.” In its Electronic Check Service package, Nova converts the transaction at the point of sale. Merchants can upload images on their own time from the back office. “The retailer can keep the check in their cash drawer and later image that check,” she says. Nova’s e-check solution also doesn’t involve special training of cashiers. “We do all the point-of-sale upgrades so the product goes electronic but as far as the cashier is concerned, it operates the same way as it always did,” Gutierrez says. The processor offers several imaging options: Merchants can buy scanning equipment for their back offices or send the checks to Nova for scanning. Nova sells both POP and BOC solutions, and processing of non-ACH check transactions under the Check Clearing Act for the 21st Century, or Check 21. But the “essence of our delivery is to take the check at the earliest point of entry, when it comes in at the point of sale and goes through the cash register and convert it at that point of time similar to how we handle a credit card transaction,” Gutierrez says. Nova has more then 10,000 merchants—ranging from the small momand-pop locations to some of the largest national, multilane retailers—using its e-check services, Gutierrez says. Linking to QuickBooks TeleCheck Services Inc., a First Data Corp. subsidiary, as part of its Electronic Check Acceptance service also offers a POP solution that doesn’t require installation of imaging scanners at the point of sale. “If a merchant has a high-quality MICR [magnetic ink character recognition] reader at the point of sale but not an imaging device, we are still able to accept those transactions for ECA,” says Mark Wallin, general manager. That’s because TeleCheck has offered POP for more than five years, primarily to regional merchants, and has amassed a large database of customer information, including name, address, and other information typically found on a check. “That is a big part of the value proposition that has helped gain momentum among the national merchant base,” Wallin says. About 60% of retailers already capture check code lines by scanning the check’s MICR line as part of the verification and guarantee process, and would require no further hardware investment to do electronic check conversion, Celent’s Meara says. The implementation of BOC also gives retailers unhappy with POP another option for electronic check conversion. That was the case with West Des Moines, Iowa-based supermarket chain Hy-Vee Inc., which Recent E-Check Growth Trends 3Q07 2Q07 Change 3Q06 Year-to-Year Change ARC 654,490,952 652,401,945 0.32% 547,087,729 19.63% BOC* 840,743 248,919 237.76% 0 na POP 123,311,764 127,747,644 -3.47% 80,485,522 53.21% TEL 84,152,223 81,676,597 3.03% 74,302,402 13.26% WEB 433,028,085 415,983,882 4.10% 341,990,975 26.62% Total ACH Transactions** 3,447,300,859 3,461,728,624 -0.42% 3,085,730,166 11.72% *BOC rules took effect March 16, 2007. **Includes electronic payroll deposits. Source: NACHA February 2008 • digitaltransactions • 15
Page 1: VOLUME FIVE, NUMBER TWO • DIGITAL
Page 4 and 5: SOME COMPANIES STAND OUT FOR OBVIOU
Page 6 and 7: D I G I T A L T R A N S A C T I O N
Page 8: THE GIMLET EYE FEBRUARY 2008 • VO
Page 11 and 12: challenges to interchange. Last yea
Page 14 and 15: TRENDS & TACTICS TRENDS & TACTICS A
Page 18 and 19: ecently adopted NCR Corp.’s solut
Page 20 and 21: In addition, 67% of retail treasury
Page 23 and 24: Changing consumer behavior regardin
Page 25 and 26: Earn Interchange with United Cash S
Page 27 and 28: Inc., has announced enhancements to
Page 29 and 30: The SEAA is Back in the SouthEast A
Page 31 and 32: From the merchant perspective, deco
Page 33 and 34: Revolutionary Times Call for a Revo
Page 35 and 36: Yes, we’re on the Web. And in you
Page 37 and 38: SECURITY February 2008 digitaltrans
Page 39 and 40: they don’t want approved. Some cu
Page 41 and 42: ENDPOINT Behind the Experimentation
Page 43 and 44: ©2007 Digital Check Corp. All righ

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