Checks in an Electronic Age
As consumers persist in writing checks, credit and collections executives are embracing new means of accepting, verifying, and guaranteeing them, methods spawned in an electronic age.
By Elayne Robertson Demby
John Higgins was puzzled to discover that few collections agencies in the Washington-state area had the capability of accepting check payments from debtors over the phone. "I was amazed that these agencies were not equipped with this simple payment option," says Higgins, chief operating officer of PayByCheck.com.
So, in July, the University Place, Wash.-based check-handling software developer debuted CollectByCheck.com. The service allows collectors to take a promise to pay by check on the phone, through e-mail, or over the Internet. Collectors enter a secured website, at either CollectByCheck's or their own company's home page, where they input the checking account information and payment dates. The company can cut a check that day, or on any other date that a debtor indicates a payment is to be made.
Such systems significantly speed up the payment and collections processes in a world where consumer check writing is far from a vanishing practice. Reports of the check's demise have been greatly exaggerated. Indeed, Americans are writing more of them annuallyapproximately 69 billion checks a year, with 18.1 billion written at the point of sale. And, it is estimated that check writing will continue to grow at a rate of 1.5% to 2% a year (CCR, June). While credit cards and debit cards have made some inroads into the check-writing domain, it's apparent that check writing is still consumers' payment method of choice.
Debtors' payment habits may not be changing drastically, but credit and collections executives are adopting newer methods of accepting, verifying, and guaranteeing checksones that incorporate the benefits of this electronic age.
More companies, like PayByCheck.com, are producing systems that allow collectors to accept checks via phone, e-mail, and Internet. Some technology providers offer check imaging and check scoring services that can help streamline the check acceptance process and combat fraud. Others are reshaping check verification services into more of a cost management tool than a traditional loss prevention service. And for retailers, electronic systems are being designed for safer acceptance of checks at the point of sale.
New York-based E Commerce Group has developed a product that allows collectors to take check payments through a number of channels. The software, called Speedpay, can guarantee checks through credit bureau services, such as Equifax Inc., and either take immediate payments over the phone or schedule payments, says Marc Mehl, vice president of E Commerce Group. "Speedpay is a PC-, LAN-, or WAN-based software system that allows merchants to receive payments online, over the phone, or [via] a voice response unit," Mehl says. Debtors can make payments using a credit card, debit card, check, or electronic funds transfer. Many customers either do not have a credit card or do not want to use revolving debt, but they still may be a good credit risk. Limiting payment options for them, Mehl says, may reduce a company's market share and recovery rates. "The name of the game," he says, "is customer convenience."
Speedpay's service is typical of many check acceptance companies. To pay by check, for example, the consumer has to read off the routing number and account number for one of his checks, and then void it. That same day, the company produces a check for deposit on a standard printer located in its office. The printed check, which states that it was "verbally authorized by the depositor," is then processed through the Federal Reserve System. Eventually, it is returned to the customer with a bank statement like any other check, Mehl says. Currently 1,200 companies use Speedpay, he says, and the company predicts that number will double in the next year.
Call It In
NCO ePayments for APS, formerly Accelerated Payment Systems, has also developed a system that allows collectors to accept checks over the telephone, through an interactive voice response system, or over the Internet. The software, called APS Quest, offers verbal automated clearinghouse transactions, says John Acquaviva, vice president of technical sales for NCO ePayments. APS Quest can even process verbal checking transactions through an automated clearinghouse network without printing a check.
The product was introduced in January 1999 and has approximately 300 users. But, Acquaviva says, the company expects that its acquisition by NCO Group in August 1999 will allow the company to access NCO's client base and expand sales. "There is absolutely no question that electronic [check] payments will grow. The trend is getting away from paper, creating ease of use for both the consumer and [the agency]," Acquaviva says.
And in the check recovery business, collections agencies are going electronic. "More companies are leaning towards electronic resubmission of checks," says Lesley Medonia, president of Fayetteville, N.C.-based C.D.M. Inc., a collections agency that specializes in check recovery. Although electronic resubmission is less than five years old, resubmitting checks electronically makes a lot of sense, she says. "Nine times out of 10," Medonia says, "the money is there when the check returns." Most check returns are the result of mistakes on the part of a debtor who, for example, writes a check that clears too quickly, or counts on an automatic payroll deposit that is made a day later than expected.
By using electronic resubmission of checks, Medonia says, an agency can recover money more quickly, and deposit funds on the same day. By comparison, the traditional method of collecting on bad checkscalling debtors and asking them to send a new check in the mailcan take as long as 45 days.
Electronic imaging, which scans and produces an image of a check, has fostered the growth of electronic acceptance, as well as resubmission, of checks. And, Medonia says, there's another bonus: It cuts data entry errors.
AutoScribe Corp., a Rockville, Md.-based supplier of check acceptance and verification services for collections agencies, has jumped on the bandwagon for new offerings in bad-check services. When a bad check comes into a collections agency, one way to try to collect the debt, says Reed Martin, AutoScribe's director of product management, is to request a new check. But frequently a replacement check never arrives. With AutoScribe's system, Martin says, "a company only needs to obtain permission over the phone from the consumer to reauthorize the check. This allows the company to print a new check payable to itself, which they sign for the bill payer." In addition to eliminating the "check is in the mail excuse," and getting the check to the collections agency sooner, Martin says, AutoScribe's system notifies the agency if a debtor is unwilling to pay so collections proceedings can begin earlier.
Other aspects of check services are changing as well. One of the biggest trends in check verification is the shift in function from a loss prevention to a cost management tool, says Arnold Feinberg, vice president of sales for Rocky Mountain Retail Systems, Lawrence, Kan. Traditionally, verification was strictly negative. The name of a consumer who wrote a bad check would show up in the database, and the creditor or collector would decline to accept another check from that individual. But today, Feinberg says, the emphasis is on positive data, with databases reflecting all known check writers, not just those with one or more strikes against them.
The expanded databases provide a larger context for determining how risky a check writer really is. And they have led to the development of check scoring systems that take into account a consumer's positive, as well as negative, check writing history.
There are essentially three reasons why checks bounce, says Feinberg. First, are the errors, such as a deposit not clearing on time, that account for about 50% of all bad checks. Second, debtors may write checks knowing they do not have the money in the account, but hoping the money will be there by the time the check clears. Third, are criminals who have no intention of paying.
However, says Feinberg, the majority of returned checks are written by honest people who will rectify the situation when asked. There are many good customers included in negative check writing databases simply because of human error, he says. As a result, companies may needlessly be declining their checks. One client of Feinberg's, AutoZone, an automotive parts distributor, became concerned that it was turning away too many potential customers because of negative information. "If Mr. Smith bounced one check, never at AutoZone, then should AutoZone turn away Mr. Smith as a customer?" Feinberg asks.
For customers like AutoZone and other retailers, accepting checks at the point of sale is becoming less of a credit riskthanks to technology. In 1998 for instance, TeleCheck Services Inc., a subsidiary of First Data Corp., introduced the TeleCheck Electronic Check Acceptance Service, which converts paper checks into electronic information at the point of sale. Houston-based TeleCheck is one of the world's largest check acceptance companies, with 226,000 merchant locations nationwide, $155 billion in checks authorized, and 1.31 billion transactions processed in 1999. As part of its core check guarantee service, TeleCheck built a proprietary national database of check writers.
When a consumer presents a check at a retailer, says Jalinna Jones, the company's director of brand strategy and marketing, the information is sent electronically to TeleCheck. The firm searches its database, scores the check, and sends back an approval code. The in-store terminal then prints out a receipt, similar to a credit card receipt, that the customer signs authorizing TeleCheck to present the transaction to the customer's bank for payment, which TeleCheck does electronically through an automated clearinghouse network.
'Headaches and Risks'
"Since TeleCheck guarantees the check, as well as processing it electronically, all the risk and headache of accepting checks is eliminated for the merchant," Jones claims. Customer acceptance is highabout 92%, she says, because the system is not an immediate transaction, so customers get the same float time they would if they were using a paper check. Also, since it's an electronic transaction, fewer people have access to a customer's name, address, telephone number, and other personal information than would be the case with a paper check.
Visa U.S.A. has also developed a model for electronic checking at the point of sale that takes advantage of the vast debit card network it has developed. "Electronic check conversion is the future, it's where the banks are going as they push to remove paper," says Candace Lilly, Visa U.S.A. vice president of emerging markets and technology. The Visa system actually accesses consumers' checking accounts at the point of sale. Visa has the infrastructure in place to access 95% of the checking accounts in the U.S., Lilly says. So at the point of sale it's possible to determine whether an account is open or closed, and if the funds are available to cover the transaction.
At a time when Americans still refuse to kick the check writing habit, innovative solutions from vendors of check acceptance, verification, and recovery services are key to attaining increased efficiency. And with the array of electronic and online offerings available today, credit-and-collections executives need not rely on the age-old promise, "The check's in the mail."
|The Check List|
|Company ||Location ||Website ||Check|
|Accelerated Payment |
|Hunt Valley, Md. ||www.apspay.com ||Provides check software for call centers and Internet users.|
|Accu Chek Inc. ||Tuscaloosa, Ala. ||www.accuchekinc.com ||Offers check recovery and point-of-sale check verification.|
|Affirmative Technologies Inc. ||Palm Harbor, Fla. ||www.affirmativeusa.com ||Provides check services including electronic processing, recovery, guarantee, and verification.|
|AutoScribe Corp. ||Rockville, Md. ||www.autoscribe.com ||Provides check acceptance software by phone, fax, and Internet.|
|C.D.M. Inc. ||Fayetteville, N.C. ||www.cdminc.com ||Offers check recovery, national check verification, and electronic returned checks.|
|CF Data/ |
|Dallas ||www.cfdata.com ||Provides returned check management, check recovery, and authorization.|
|Chec-Point Inc. ||Orlando, Fla. ||N/A ||Performs check recovery and verification.|
|Check Center ||Witchita, Kan. ||www.checkcare.com ||Offers check recovery and verification.|
|Check Relay Systems ||Southfield, Mich. ||www.checkrelay.com ||Provides web-based check printing system and check acceptance by phone, fax, or Internet.|
|Check Technologies Inc. ||San Antonio ||N/A ||Offers check recovery and verification service.|
|Check USA ||Dickson, Tenn. ||N/A ||Provides check verification, guarantee, and check recovery.|
|CheckCare Systems ||Birmingham, Ala. ||www.checkcare.com ||Has check guarantee for local businesses.|
|CheckFree Corp. ||Norcross, Ga. ||www.checkfree.com ||Specializes in e-commerce, check processing, and recovery.|
|Checks-by-Fax-or-Phone ||Brooklyn, N.Y. ||N/A ||Enables users to pay instantly by check via phone or fax.|
|Direct Check Inc. ||Severna Park, Md. ||www.directck.com ||Offers check processing over the phone.|
|Global Check Control ||Brunswick, N.J. ||www.savitcollect.com ||Provides national check verification and returned check recovery.|
|ICPP ||Beverly Hills, Calif. ||www.icpp.com ||Offers software to receive and print bank checks and real-time verification.|
|Intell-A-Check Corp. ||Belleville, N.J. ||www.icheck.com ||Accepts checks by phone, fax, voice response unit, direct debit, or Internet.|
|International Banking Technology Inc. ||Lorton, Va. ||N/A ||Offers check by phone services.|
|Kenwood Data Systems Inc. ||Greeley, Colo. ||www.kenwooddata.com ||Provides check recovery, guarantee, and verification.|
|National Check Network ||Albuquerque, N.M. ||N/A ||Offers check verification, processing, and local recovery and tracking.|
|PayByCheck.Com ||University Place, Wash. ||www.paybycheck.com ||Allows users to accept checks on the Internet and offers a check processing system.|
|Priority One Electronic Commerce Corp. ||New Holland, Pa. ||www.priorityone-ecc.com ||Processes electronic fund transfers.|
|RMB Check Services ||Knoxville, Tenn. ||N/A ||Provides check recovery and verification.|
|Rocky Mountain Retail Systems ||Boulder, Colo. ||www.rmrs.com ||Provides database for check verification, processing, and recovery.|
|Speedpay ||New York ||www.speedpay.com ||Accepts checks by phone or Internet for immediate or future payments.|
|Sure Check Brokerage ||Salina, Kan. ||N/A ||Provides check recovery and verification.|
|TeleCheck Services Inc. ||Houston ||www.telecheck.com ||Offers paper and electronic check processing, guarantee, and verification.|
|XpressChex ||Albuquerque, N.M. ||www.xpresschex.com ||Provides electronic check transaction and processing geared toward merchants.|
|Sources: The companies|