An alternative payment company is using imaging technology to process online purchases.
MyECheck Inc. of El Dorado Hills, Calif., said that to consumers, the process seems almost the same as entering bank account information to initiate an automated clearing house payment, though some merchants find its imaging service easier to use.
"The funds clear faster" than they do for ACH, "typically same day or overnight," said Ed Starrs, MyECheck's founder and chief executive. "The Fed provides availability to the depository institution by the next banking morning on the funds."
He also said that his service is accepted more widely than ACH transactions. "It actually works with more consumer accounts. It works with pretty much 100% of accounts in the Federal Reserve System, even accounts that cannot be ACHed. We can even process brokerage account checks or credit card checks."
The service has been available since September, and has about 50 online merchants as clients. Last week MyECheck announced that the software development company Tele Tek Solutions Inc. and Xziex Inc., a company that makes a device it claims can produce drinking water from the humidity in the air, had signed up.
For an electronic payment system, MyECheck's process relies on some low-tech techniques. Shoppers enter bank account details, which the company uses to produce a paper check. The checks are scanned to produce digital images, and the originals are destroyed.
Doing so is "kind of silly, actually, but right now that's what we are told we should do," Mr. Starrs said.
Eventually he hopes to be able to stop printing the short-lived checks to save time and reduce his costs.
The images are sent to First Regional Bancorp of Century City, which routes them through the Fed's image network to paying banks.
Mr. Starrs said using images, which are covered under check regulations, offers some advantages over ACH payments — notably, it is harder to reverse a payment made with his system. "Once they're cleared, we get far fewer instances of unauthorized transactions."
If a consumer reverses a legitimate transaction, it is easier to collect, he said, because the payments are regulated by the Uniform Commercial Code. "The collection companies have more teeth."
In addition to its basic payment service, which does not include fraud detection, MyECheck sells authorization, identity verification, and deposit guarantee services. Mr. Starrs said many merchants sign up for the authorization service, which checks an account to see if it is valid and in good standing.
MyECheck has focused on working with airlines, travel agencies, and the e-commerce sites of large retail chains; it has avoided higher-risk industries like gambling, credit repair, and telemarketing.
The merchants that use MyECheck agree to take on the liability for any fraudulent payments, and so far it says the setup has worked, largely because of MyECheck's choice to favor working with established merchants
"If it's a large company that's been around for a time, they're not going to stiff a bank," Mr. Starrs said. "We're not out to displace cards, but we augment their other payment methods."
Consumers who use MyECheck tend to be people who do not have a credit card, dislike cards, or have had their cards declined, he said.
MyECheck is not the only alternative payment provider pursuing this strategy. ModaSolutions Inc. of Ottawa offers a service that lets people pay for online purchases with ACH debits to their bank accounts. It encourages its merchant clients to promote its payment service when a customer's credit cards are declined.
In addition, MyECheck is hoping to win business from companies that do not take credit cards at all for payment, such as mortgage and other card companies, though Mr. Starrs said his main focus is online retailers.
Nick Holland, a senior analyst at Aite Group LLC of Boston, said MyECheck's strength is also its weakness. Working through the check system "does tie into, obviously, a very tried and true payment method." However, "the trend is away from checks, not towards checks."
And since consumers are using fewer checks, they may not have their checkbooks handy when they are trying to make an online purchase, Mr. Holland said.
MyECheck is "trying to electronify something that is essentially on the way out," he said, and its success will largely depend on its appeal to merchants. "They've got some potential, so I guess there might be certain merchant categories where they fit in."
