transaction and is provided with a copy, with their receipt, as a record of the purchase. The merchant
uses the check information, along with the transaction amount, to initiate an Automated Clearing House
(ACH) debit, which is processed electronically
It's no surprise that many
businesses are eager to adopt
electronic check conversion.
When checks are converted
from paper into an electronic
transaction format, handling and
transaction costs decrease and
the percentage of successful
through the ACH Network. A complete description of the transaction appears on the consumer’s monthly
statement from their financial institution.
A consumer’s check is processed through the same safe and secure system that banks use today for
electronic deposits and payments. Consumers have the same amount of time before their check is presented
to a bank — about two business days. Additionally their bank statement provides even more information
— the date the check cleared the consumer’s account, its amount and the place the check was presented.
Electronic check conversion has not received wide spread adoption with merchants and consumers. According
to NACHA, retail sites using electronic checks reached 24,656 in January 2000, up from the 6,215 POS
locations the previous year, but a minimal percentage of the total number of retail locations that
participate in check authorization. Several companies, including BankServ Inc. of San
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Francisco, TeleCheck Services, the check services unit of Atlanta-based First Data Corp., and E-Funds
Corp., the recent e-payments spin-off of Deluxe Corp., have made substantial inroads with POS check
conversion. Today, at least 50,000 merchants subscribe to ACH-based conversion services from these
three companies. However, the vast majority of retail sites participating in electronic check conversion
are single terminal dial-based retailers with minimal check volumes. Adoption, if it comes, will only
come when nationally based retailers that accept the greatest percentage of checks, implement check
conversion. This is not likely.
A recent electronic check conversion pilot test by a supermarket chain (that wished to remain anonymous)
found that consumers did not understand what was happening and were unsure of the transaction. Although
education and time will solve this issue, a larger issue looms in the background. Electronic check
conversion has not been endorsed by financial institutions, which prefer that consumers pay with
their credit card, offline debit card, or continue to use the established check acceptance process.
Because the physical check does not actually enter the paper check clearing process this cuts out
item processing fees — a huge revenue producer for banks and service bureaus.
Beyond this, there are other “barriers to implementation” that these providers will need to tackle.
Electronic check conversion does not accommodate business checks. Although the volume of personal
checks dwarfs that of business checks, it causes cashier confusion because the process is different
(NACHA is currently working on ways to accommodate business checks).
A consumer can opt not to participate, again potentially causing cashier confusion if the check being
tendered becomes an exception item, the cashier needs to be able to recognize that it is an exception
item and resolve it to the best interest of the store and the consumer. Is the financial institution or
the consumer the keeper of the voided check? If it is the financial institution, check handling time
and cost are not reduced.
Larger retailers will require integration of the electronic check conversion system with their legacy
system, not a small task. Additionally, they will need to educate and train accounting, cash management,
clerk, and the consumer.
The merchant’s reconciliation of their bank statement may become much more complex - electronic checks
tendered, paper checks tendered, exception check items, etc. - will result in different cut-off times
and balancing daily and monthly activity.
In the next issue of Transaction World Magazine, we will discuss two alternatives to Electronic Check Conversion
— SafeCheck and the Visa Check Service Initiative.
Mike English is the Director of Corporate Communications at IVI/Checkmate, a major transactions solutions
provider in North America. Visit IVI/Checkmate at