Sudden Allure - Digital Transactions

ACQUIRINGFebruary 2010 digitaltransactionsVet Those ChecksPeter LucasPaper checks may be in steep decline at the point of sale thanks tothe mainstreaming of electronic payments, but there are still plentyof opportunities to bundle check verification and authentication withnew processing services.It’s no secret that check volume atthe point of sale is on the declinein the United States as more consumersopt to pay with alternatives,especially debit cards. Check authorizationand guarantee, however, arenot going away.Indeed, several merchant categoriesremain hotbeds of activity thataccount for the majority of checkswritten at the point of sale, such assupermarkets, pharmacies, and healthcareproviders. These merchants servicecustomers so accustomed to payingby check that they find the habithard to break, even if the option topay with plastic is offered.Further stoking the need for checkauthorization and guarantee is thatmerchants are finding check acceptanceto be a dicier proposition thanever. As the pool of consumers writingchecks at the point of sale shrinks,the remaining check writers are provingriskier. These higher-risk checkwriters are the ones more apt to trypassing a fraudulent check or a checkwritten on a closed account.“Check guarantee is becoming amore valuable service to merchantsthat still accept paper checks becausethe instances of bad checks comingthrough the system are growing,” saysRobert Meara, a senior analyst forBoston-based Celent LLC.St. Petersburg, Fla.-based Certegy,a unit of processor Fidelity NationalInformation Services Inc. (FIS), saysthat 500 million checks totaling about$10 billion are forged annually.“We’re also seeing about a 20%annual increase in attempted checkfraud,” says Thomas Carlton, vicepresident of strategic business developmentfor Certegy.‘Downstream Costs’Check verification/authentication reducesthe risk of accepting a check byvalidating the bank routing number andaccount number on the check. Checkguarantee, which is more expensive,goes a step further by guaranteeingpayment to the merchant regardless ofthe check’s authenticity or if there areinsufficient funds to back the check.Increased check fraud alone couldbe enough to build a case to purchaseauthentication or guarantee services.But merchants that convert checks toelectronic formats are discovering theytoo can benefit from these services asthe lingering recession is causing aspike in the number of paper andelectronic check transactions rejectedfor non-sufficient funds (NSF).“Check fraud may be increasing,but so too are the number ofcheck transactions returned for nonsufficientfunds,” says Karen Kaukol,vice president of product managementand innovation for Atlanta-based FirstData Corp. “Even if a merchant electronicallyaccepts checks at the pointof sale, that doesn’t reduce the acceptancerisk. The increase in checksreturned for NSF helps strengthen thebusiness case for bundling check verificationand authentication with electroniccheck acceptance.”First Data, which provides checkauthenticationand -verification servicesthrough its TeleCheck unit, addsthat it is seeing double-digit increasesin check fraud.While bundling check authenticationand guarantee with electroniccheck conversion is nothing new forcheck processors serving banks andmerchants, it remains a popular servicepackage with large merchants.“Large merchants that haveinstalled electronic check conversionusually commit to authentication andverification to offset the acceptancerisk,” says Chuck Doherty, vice presidentand product specialist for Brookfield,Wis.-based processor Fiserv Inc.Several national retailers includingAutoZone Inc., The Home DepotInc., Sears Holdings Corp., andWal-Mart Stores Inc. have adopted14 digitalFebruary 2010