By Patti Murphy
The Takoma Group
If someone had said when I first began writing about payments nearly 30 years ago that checks would be a mainstay of the U.S. economy in the 21st century, I suspect I would have considered that person a fool.
It was, after all, a period of great optimism. It gave us a generation of philosophers, deemed futurists, who proposed the demise of pesky paper payments in the not-too-distant future.
They said we'd all carry a single card (what today might be called a smart card) with which we could transact all types of business electronically.
Alvin Toffler's seminal book, Future Shock, had been widely read, and his latest tome, Third Wave, was just hitting the bookshelves. Banks were beginning to install automated teller machines (ATMs) and issue debit cards. There was even talk of ATM networks.
The optimism among some bankers was palpable, as was the entrenched mindset of "second wave bankers" (to borrow a phrase from Toffler) who weren't quite ready to bet their careers on consumer adoption of electronic funds transfer (EFT).
Now, here we are well into the 21st century, and the banking system remains awash with checks. It probably will remain that way until long after I put away my reporter's notebook. That's not as bad as it might have once seemed, however.
That's because banks (with substantial assistance from the Federal Reserve) have managed to push a lot of paper out of the system by effectively "electronifying" the clearing and settlement process.
It's been great for the banks. Because of new product opportunities like remote check capture (RDC), banks have been able to break down remaining barriers to nationwide deposit gathering. I've interviewed bankers in New England who have relationship officers all over the country selling RDC.
But, as is often the case with banks, they're leaving behind a lot of low-hanging fruit. That's where abundant opportunities exist for ISOs and merchant level salespeople.
Millions of small merchants accept credit cards today - mom-and-pop stores, medical offices, auto repair shops - that are prime candidates for RDC services.
These are the folks who actually take check deposits to their local bank branches day in, day out.
Getting bank branch personnel to sell remote check capture hasn't proved easy. U.S. Bancorp, parent company of Elavon (the card acquirer formerly known as NOVA Information Systems), has 2,400 branches that would seem ideally positioned to sell services like RDC. But building on that network to reach small business customers isn't easy.
"If we could get our branch personnel to lead with remote deposit when a small business owner comes to open an account, we could potentially have 10,000 new leads a month," said Beth Blaisdell, Senior Vice President at Elavon.
Blaisdell said she sees opportunities for the feet on the street to sell all-in-one agreements under which merchants get to make all noncash deposits electronically - checks and cards.
Boston-based consultancy Celent LLC estimates there are 14.5 million small businesses that are prime candidates for RDC.
While on a routine visit to the doctor's office recently, I noticed a desktop check scanner on the billing clerk's desk, right alongside his card terminals. I couldn't help but ask what he thought of the service. "I think it's great," he beamed. "The best part is now I don't have to take time to go to the bank every day."
I was curious, so I inquired as to how many checks he had to deposit. Perhaps a handful each day, I thought. Wrong. The stack he had of the previous day's deposit contained at least two dozen checks.
Bob Ficarra, Vice President for ISO and Partner Relations at CrossCheck Inc., sees opportunities in the RDC sphere for ISOs. And he likens them to the opportunities that existed in the early years of selling card acquiring services to merchants.
"It's a huge opportunity for anybody who is willing to stand up to the fraud," Ficarra said. Risk of fraud arises from the fact that consumers are entitled to contest some demand deposit account transactions for almost 90 days from the posting date.
Federal check law provides a 45-day period for consumers to contest transactions; this applies whether the check is cleared as paper or as an electronic check. Consumer EFT law, as implemented by the Fed's Regulation E, provides 60 days from the receipt of the statement containing the suspect transaction.
So, depending upon when in the statement cycle a transaction hits, it's entirely possible that it could take almost 90 days for an account holder to dispute a check payment that has been converted to an automated clearing house (ACH) transaction.
Ficarra, like many other check folks I've interviewed lately, believes ACH check conversion has likely peaked. The benefits of clearing checks as electronic replicas of the paper generally outweigh the ACH option.
According to NACHA - The Electronic Payments Association, the most popular ACH check conversion application today is accounts receivable entry (ARC), which was used to clear 2.66 billion remittances that started out as checks last year. Just fewer than 4.2 million checks were back office conversion (BOC) items. BOC is the most recently introduced ACH format.
The Fed reported last year that banks settled 30.6 billion checks in 2006. About 40 percent of all interbank checks were digitized and cleared electronically. And electronic check networks (like SVPCO) are charting triple-digit growth in dollars cleared so far this year, compared to 2007.
While attending the 2008 ETA Annual Meeting & Expo last month, I ran into a vendor I hadn't seen in years, someone I was more accustomed to seeing at shows that attracted corporate treasury professionals and their banks.
He was there to tap into the opportunities he saw for his firm, Digital Check Corp. Based in Northfield, Ill., Digital Check was at the convention to introduce a new desktop check scanner, CheXpress, designed with a small footprint to support small businesses.
Paul Rupple, Digital's Director of Marketing and Product Development, said he's seeing huge demand for the devices, which can be installed for free, with a monthly fee. Digital Check is competing with companies like MagTek Inc., Panini and RDM Corp.
I also spent time during ETA visiting with NetDeposit Inc., a unit of Zions Bancorp. in Salt Lake City and an early pioneer of check "electronification." NetDeposit was showcasing its Check360 RDC solution developed for what it calls "today's progressive ISOs."
So, it looks to me like all signs point to ISO opportunities selling electronic check products.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.
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