Necessity is the mother of check innovation
March, 2002 -
The challenges of minimizing the costs of check acceptance
and check cashing are leading retailers to new investments and new
strategies at the point of sale and behind the scenes. From major
players such as J.C. Penney and Best Buy to the three-store
Duthler Family Food, programs that recognize the customer's desire
to write checks and the retailer's need to improve efficiencies
are making impacts.
Plano, Texas-based J.C. Penney Co. recently expanded its
electronic check re-presentment and recovery program from 760
stores to 1,027 stores. The move by the retail giant is a vote of
confidence for the concept of electronic check re-presentment.
Under the program, through Vancouver, British Columbia-based LML
Payment Systems, the retailer instructs its depository banks to
send all returned paper checks to LML for electronic processing.
The ability to automatically present checks to the bank can
result in recovery improvement and cost savings, according to LML.
Industry estimates put the number of checks returned for
nonsufficient funds at more than 1.1 million per day.
According to LML, electronic re- presentment is a stop on the
road to the even more efficient strategy of converting checks to
electronic payments at the point of sale. "While we see such
[recovery programs] as an intermediate step toward retailers
realizing the full potential of electronic check processing, we
believe these successful initiatives clearly demonstrate that the
ship is away from the dock regarding retailer adoption of the
technology," says Patrick Gaines, LML's president and CEO.
Retailers say a high percentage of nonsufficient-funds checks
are the result of honest mistakes. But a small percentage of
dishonest customers can create very large problems. Such was the
case at Duthler Family Foods of Grand Rapids, Mich., until it
introduced a biometric, fingerprint-scanning solution.
The small chain offers check-cashing services to customers,
many of whom do not have bank accounts. Fraud however, reached a
point recently where losses couldn't be sustained. To counter
fraud, Duthler Family Foods took the unusual step of
fingerprinting customers. By using an electronic scanning device
to capture a person's fingerprint, the store keeps a file of the
customer's positive or negative check-transaction history.
Customers who want their checks cashed must scan their finger in
the scanner from Herndon, Va.-based BioPay.
Customers must enroll to enjoy check-cashing privileges, but
owner Tom Duthler doesn't see that as a problem. "If you don't
want to enroll, then we don't want your business because, more
than likely, you're trying to pass a bad check," he says. "At
least that's what our experience has been. Honest customers love
the system. It takes them under a minute to cash a check and be on
their way." Counterfeit-check cashing has been reduced by more
than 75% at the chain.
For retailers that accept checks at the point of sale,
eliminating bad checks is just half the battle. The other half
involves maximizing sales --or accepting those checks that have a
very good chance of being valid, despite their appearance in a
negative file. With the goal of increasing sales and lowering
losses, Eden Prairie, Minn.-based Best Buy recently renewed its
relationship with Certegy, Alpharetta, Ga., for point-of-sale
check risk-management and loss-prevention strategies. Certegy
employs nationwide data pools and artificial-intelligence models
to assess and manage risk.
Retailers that offer check- cashing at their stores gain from
the advantage of providing a service to their customers and
putting cash in the hands of people in their stores. At
Dallas-based 7-Eleven, the company's financial-services
initiative--Vcom--was highlighted as a key area of differentiation
for the chain. In its most recent quarterly report, 7-Eleven said
it expects to have up to 3,500 Vcom kiosks in its stores providing
self-service check-cashing and money-order purchases, among other
services. Currently, 98 Vcom kiosks are being tested in Texas and
Florida.
--Ken Clark
