The Green Sheet :: GS Archives

Letters to the Editor

Dear Mr. Green:

First of all, I do appreciate all the great information you provide in The Green Sheet. It's been quite a great help in learning some of this great business we're in. I have been an ISO since 1992 and started selling in this field in 1989, so I have a little bit of experience, I guess. I also enjoyed your new book very much. I had the opportunity to meet you in Orlando, FL a few years back and you seem to be a real down-to-earth kind of person, besides being so dynamic and influential in my life.

Joe Brito

Joe:

Thanks for the kind words.

Good Selling!^SM Paul H. Green

Dear Paul:

First, I would like to express my appreciation for the outstanding research you have done in your United States Check Studies (1996, 1997, 1998). The information provided was invaluable and has helped with my comparison study of paper vs. electronic checks. I still have some questions that either you can answer directly or point me to potential source documents for further research.

You mentioned in the 1997/98 Check Study that, on the aggregate, slightly over 1% of checks are return items (Federal Reserve data used to calculate). You also mentioned that checks at the point of sale represent a higher return risk than the aggregate. Have you been able to quantify the percentage of return items at the point of sale? I assume this percentage would vary by business sector and locale of the business. IVI Checkmate used a 2.5% return item rate for a grocery store example. Any information in this regard would be greatly appreciated.
In your research, have you calculated the average per transaction cost for a paper check? The overall cost would include bank fees, processing, and delivery of deposits to the bank, reconciliation of cash registers to the deposit items, etc.
Credit card and debit card purchase would also be alternative purchase methods to paper checks and electronic check conversion. Again, do you have any data regarding the per transaction costs for credit card and debit transactions? I know from my own business that the bank charged a discount rate of 4.5% of the purchase amount. I understand that depending on volume, the discount rate range is from 1.5 to 7%. Do you have any data that is significantly different for credit cards and any data at all on costs of debit card purchases?

Thank You,

Nathan Offermann

Nathan:

Thanks for the kind words. You should order a copy of the 1999 study, since you have three of the preceding issues.

The dishonored level of checks nationally, from my research, is 1.33% (dollars). While the ABA places the return level at 75 basis points (transactions), and the Fed places the number of transactions returned at about 1%, the dollar value of returns has always exceeded the number of transactions, and I have continued to say that we have a 1% national check problem (give or take), and the dollar value is about 38% greater than transactions.

As you point out in your first question, certain business segments (low ticket-high volume) have very different numbers from the majority of the 6.2 million points-of-sale. I do not have the number that you are looking for, and I have seen grocery numbers (very high volume) extrapolated to the average with very bad results. The average merchant in this country receives such a low volume of checks per day that cash is much more a problem to handle than checks, from a processing, delivery, and reconciliation point of view.

Again, I am sorry that I do not have more data for you. I will point out that there is a reason that several major retailers have had a suit against Visa and MasterCard concerning debit cards. Wal-Mart and others do not believe that the cost of checks, which debit cards are presumed to replace, are anywhere near the Interchange charge for debit.

Assuming that the discount rate for debit cards or credit cards is about the same as the guarantee discount rate for checks (guarantee can be much less), and assuming that this makes the payment options comparable from a risk point of view, then the remaining cost difference is fraud.

William Roberds, a research officer in the macropolicy section of the Atlanta Fed's research department notes, "As is the case with currency, available statistics suggest that check fraud is not a large enough problem to significantly detract from the use of checks as a payments medium. The overall rate of check fraud loss is less than 2 basis points, or two-hundredths of 1 percent." Roberds also notes, "The incidence of fraud in credit card purchases is quite small in absolute terms, but is relatively high as compared with checks."

I will have more to say on this and other such subjects in my new book Checks at the End of the 20th Century...and Beyond, out later this year.

Good Selling!^SM Paul H. Green

Hi Paul:

I just read the newest release of The Green Sheet. As usual, it was great. Question for you:

The part about the lease witness signature, let me see if I understand what you are saying: we don't have to sign the witness part?

Best Regards,

Peter

Peter:

The response was about a particular lease company, however, the situation certainly makes one want to ask the lease organizations they are working with if they really need this signature.

Good Selling!^SM Paul H. Green

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First Published November 1, 1999