TeleCheck's strategic discussions and direction were disclosed at a conference recently. The conference brought to light this check approval giant's views on point-of-sale check truncation. Late last month, former employee and current TeleCheck competitor, Terry Stepanik of U.S. Dataworks in Houston, Texas, explained the direction of what he called "Point-of-Sale Electronic Check Acceptance" to an audience comprised mostly of bankers.
Listing the organizations currently working on Point-of-Sale Electronic Check Acceptance and RCK (an ACH redeposit function which really is truncation) Mr. Stepanik mentioned TeleCheck, NACHA, Equifax, eFunds, and a category he coined "Geeks ëR' Us," which, I believe, was intended to represent BankServ, Electronic Check Processing, TransMark/Leisureways, GPST, and CrossCheck, to name a few.
Mr. Stepanik explained that it is not correct to describe the elimination of a consumer's check in favor of an ACH replacement of the transaction as "check truncation," because that description would make the transaction subject to Federal Reserve Regulation E. But calling the transaction "Electronic Check Acceptance," subjects the transaction to the Electronic Funds Transfer Act, Reg. CC, and UCC4. To me, this seemed like a strange explanation for this conference, even in light of NACHA's pilot guidelines on the subject.
Mr. Stepanik explained that TeleCheck views Electronic Check Acceptance as a strategic issue; they believe their 370 million checks handled per year through either verification or guarantee can be tripled, if they can succeed in converting just 10,000 of their 165,000 merchant locations from paper checks to electronic checks. Mr. Stepanik further reported to the banks that TeleCheck's entire cost benefit analysis turned on the return item fee. Mr. Stepanik continued to state that the NACHA rules, which TeleCheck has been instrumental in crafting, call for the consumer to authorize, in advance, the ACH drafting of their personal account for the lawful amount of returned fees when checks bounce. This is where the real money is in the new product, noted Stepanik.
Mr. Stepanik also addressed the changes occurring in the banking industry. He implied that banks should be concerned, very concerned, as third-party providers (such as TeleCheck and their ODFI [Originating Depository Financial Institution] partner BankOne) begin to move large volumes of checks from paper to ACH. He noted that this change will affect a large number of banks, as TeleCheck begins to:
Suggesting a course of action, Mr. Stepanik proposed a bank could:
1. write their own POS check acceptance system,
2. partner with a check guarantee company, not TeleCheck as they are already committed,
3. use existing bank network/switches to gather transactions. (I believe this was the suggested course of action through, of course, U.S. Dataworks.)
Mr. Stepanik expressed the savings opportunity for large volume retailers as:
1. lower bank deposit item charges (assuming that the local bank will lower basic commercial account fees for small and medium accounts, when the work goes elsewhere),
2. lower bank return item charges,
3. no collection hassles (assuming the consumer can be located for collection without the information that would otherwise be on the check which was given back to the consumer),
4. predictable cash management,
5. reduced trips to the bank to make deposits.
Regarding the potential problem of locating the consumer without the aid of contact information from the check or, for that matter, the merchant producing a signed receipt when the ACH is returned (called an R10 return, Consumer Advises Not Authorized), Mr. Stepanik noted that TeleCheck's early experience reflected that 2% of the ACHs will be returned. Of this, only 5% were R10s. The implication of the explanation seemed to be that this would simply be a pricing issue, charging the guarantee customer for these items as part of an elevated rate or the return of these items for a verification customer.
What was most startling about this presentation, however, were the consumer benefits:
1. confusion,
2. "loose" checks,
3. automatic service fees,
4. "Lemming Theory."
Mr. Stepanik addressed the obvious concern over consumer education and acceptance. While employed by TeleCheck, Mr. Stepanik assumed that only a small portion of consumers would be happy to have their account ACHed, rather than simply write the check. He thought consumers would also resist giving an ACH approval to debit for return fees, however, TeleCheck marketing personnel were convinced that it would be a much higher acceptance, due to the "Lemming Theory." Mr. Stepanik noted that this theory has been proven to be correct. The theory is: the consumer will blindly accept the process, being accustomed to bankcard transactions, and will not know or care how ACH works. Further, the consumer will not know what pre-approved access for the return check fee (which is not a statutory fee, but a courtesy fee) may really mean, before it is too late.
Mr. Stepanik's discussion of the direction of Wal-Mart, TeleCheck's largest customer, suggested that Wal-Mart was considering an "all-or-nothing" consumer policy (a direction permitted under the NACHA guidelines for retailers who do not want to support multiple clearing methods) for Electronic Check Acceptance, indicating that Wal-Mart was considering asking the consumer for another form of payment if they will not sign the ACH agreement.
While this presentation was interesting and very illuminating in many ways, it left me wondering:
How long it will take for a consumer rights or advocacy group to begin to complain about the process?
After all, in an era of blocking collect phone calls, why not ACH blocking?
