GS Logo
The Green Sheet, Inc

Please Log in

A Thing

Links Related
to this Story:

Who Says Check Guarantee is Dead?

By Lin Fellerman

Going back as far as 20 years, I've heard from so-called industry pundits who to this day continue to pontificate on the demise of the paper check. Well, I hate to break the news, but the king is not dead, as my colleague Steve Eazell wrote in an entertaining article last month here in this very publication ("On Life Support, Paper Checks Making Valiant Effort," The Green Sheet, April 26, 2004, issue 04:04:02).

In fact, the paper check is not only alive and well (conversion as we know it at the point of purchase actually depends on it), check guarantee-the bane of our existence-is also surviving and thriving.

Over the years, despite its success, as evidenced by the growth enjoyed by Telecredit/Equifax Check Services (now Certegy Check Services), First Data Corp.'s TeleCheck, CrossCheck, Inc., and many others (including my own company), check guarantee has nevertheless been kicked, maligned, beaten and tossed aside like an old scrap.

Take that paper check out of the trashcan-clean it up, polish it, and reuse it!

Why you say? Because those shiny, new fangled picture-taking machines known as imagers, which are selling like hotcakes these days, depend on it.

I say paper check guarantee is not dead! Based on my experience, I can tell you I am not alone in this regard. Probably 80% of the guarantee deals that are written today are still the vanilla paper-based variety. How can this be?

Paper check guarantee is certainly not as sexy and streamlined as its conversion counterpart. It also does not account for the sizzle of imaging equipment sales, or the greater likelihood of guaranteeing all checks versus the age-old "cherry picking" authorization method.

That is exactly why customers still gravitate to paper-based guarantee-simplicity and control. It's simple because many guarantee companies, including Secure Payment Systems, do not require peripheral check reading devices, even though they are beneficial.

In the interest of science and humanity, regarding potential fraud, when was the last time you thought about how easy it would be to obtain five bank accounts in one afternoon versus five unique, valid drivers licenses?

Many merchants are also afraid of "new stuff;" after all, from their perspectives, if something isn't broken it doesn't need to be fixed.

The control aspect is even more far-reaching. Many merchants prefer (yes, prefer) to deposit their paper checks and hold, touch and caress their beloved bank deposit receipts. Heck, some of them may even sleep with the receipts tucked neatly under their pillows.

Many merchants prefer to selectively guarantee the transactions of their choice in order to avoid paying discount fees on their frequent customers.

Many merchants don't even know if they are being properly compensated for each batch unless they call their banks or access accounts online (assuming they can go online). With paper-based guarantee, merchants generally get funded more quickly by going to the bank each day than they would be with 48- to 72-hour ACH settlement from the conversion provider.

Finally, consider the goodwill issues that concern many local merchants when long-time or frequent customers accidentally bounce a check. The customers are often subjected to third-party collection efforts and not offered the benefit of initially being contacted by the merchant. What is the biggest myth of all? That consumer debiting and settlement in the ACH world is real-time. Nevertheless, and despite all the nay sayers, we are proponents of check conversion.

For every merchant objection cited above, there is generally a corresponding satisfactory answer to mitigate those concerns.

Let's face it: Guarantee companies are major beneficiaries of a paper-based world. The accounting issues of immediate funding and items rejected by the ACH go away. Using imagers or retrieving images eliminate those concerns. If the guarantee company doesn't want to pay a claim, it doesn't-and it does so without first having paid it up front. Moreover, bank deposit fees and bad check service charges still belong to the merchant.

It's a Catch-22 situation if you ask me. I can describe all the reasons a merchant should move to a conversion/guarantee environment and all the reasons an MLS should also embrace a conversion/guarantee environment. And yet, paper is still king today.

Granted, the landscape is changing; POS equipment continues to become smaller, faster, cheaper, and more capable of enabling multiple applications.

As price points continue to fall (in much the same way they did with personal computers), I believe the prevailing merchant attitude will be inversely proportional and subsequently pick up steam in a dramatic way.

Whether a merchant is set for manual deposit or conversion, the question "Why use guarantee versus a simple verification process?" is largely an issue of control and philosophy.

If one properly defines (and "properly" is the key word because we may each define it differently) and then adds up all the cost elements of accepting checks in a verification environment, the resulting analysis relative to check guarantee would, in my mind, be quite clear.

These cost elements include restrictive check acceptance policies that result in reduced sales volumes, which by definition should include the cost of replacement sales volumes processed via different methods at different costs (i.e. credit card rates, etc.)

Unfortunately we don't have the space available here to attack that hornet's nest. Before you can address the differences between the two services, you have to clearly understand the differentiating capabilities and unique characteristics of the companies involved in those two arenas.

This is especially critical when comparing the risk management systems that, if they are superior, can more than offset the core collection competencies of a rival competitor. After all, it is still more cost-effective to stop the fire before it starts.

Expertise in risk management will win hands down every time, considering that lower pricing can be proffered to obtain the same gross margin as the also-ran struggling and depending on collections to make up higher loss percentages.

Lin Fellerman is Founder, President and CEO of San Diego-based Secure Payment Systems, a national provider of electronic check and gift card processing services. Prior to founding SPS in 1996, Fellerman was formerly a 20-year employee and 10-year President of Telecredit/Equifax Check Services (now Certegy Check Services). To learn more about SPS look them up at or send an e-mail to

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Back Next Index © 2004, The Green Sheet, Inc.