Consolidation in Check Services

  We’re all aware of the consolidation in the bankcard industry over the last few years. We have also watched the consolidation slow down, after the NOVA Corporation acquisition of PMT.

The same process is beginning to take place in check services, and is likely to accelerate in the near term. Over the last few months, InstaCheck Services acquired World Check, one of the oldest check guarantee firms in the country, and CrossCheck Inc., acquired the assets of VeriCheck and its parent PCM.

More recently Electronic Clearing House, Inc. (ECHO), which operates its own in-house check service, has acquired Rocky Mountain Retail System, Inc. Among other things, Rocky Mountain operates a check verification business, providing the negative file for such companies as E-funds, GPST, and even Checkcare Enterprises, Inc. and its franchises. (CrossCheck has also been a contributor to the Rocky negative file.)

In January, International Payment Services (formerly NPC Check Services) closed its acquisition of Checkcare Enterprises, Inc. Additionally, Global eTelecom (see story page 9) acquired the software and intellectual property of GPST, making its bid to be a player in check conversion.

Finally, speaking of check conversion, you remember the guys who say that they hold the patent on check conversion (ChequeMARK) who later sold their patents and other rights to Leisureways Marketing, now known as LML Payment Systems? Well, they have just acquired National Recovery Systems Ltd. of America dba Check Center, of Wichita, Kansas.

Check Center specializes in providing traditional check verification and collection services to retail merchants throughout the Midwest, and boasts a client list that includes Coastal Mart, Applebee’s, Blockbuster Video, Pizza Hut, Amarillo Grill, Star Lumber, and Godfather’s Pizza. According to Check Center they verify 21.5 million check transactions annually with a dollar value of $1.1 billion from a total of 1,490 merchants.

In November LML also closed on a $5,000,000 private placement with four institutional investors at a purchase price of $5.00 per share. In December they bought CFDC Holdings Corp. CFDC’s subsidiary CFData is reported to be the twelfth-largest check authorization company, behind SCAN.

In 1998 CFData verified checks with a dollar value of $3.2 billion from 7,892 retail outlets. CFData’s customers include JC Penney, KFC, some 7-Eleven franchises, and the corporately-owned 7-Eleven stores across the country.

The two acquisitions (CFDC and Check Center) gives LML an aggregate verification volume in excess of 114 million check transactions, with a dollar value exceeding $4.4 billion. These figures place LML, through its subsidiaries, as the ninth-largest firm in the check authorization industry.

We are aware of three separate acquisition-merger discussions currently underway, and it is likely that there is much more going on. It should be an interesting year.

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