Litle & Co., a leading credit card processor for direct marketing firms, has announced its payment system can now process checks electronically.
This enhancement will give mail-order merchants a single source for processing payments and let them offer another payment option to their customers.
The enhancement, called Electronic Check Processing, enables checks to be processed in a similar manner to credit cards. The system uses the automated clearing house, which provides direct access to consumer checking accounts.
Customers paying by check are asked for account information, just as they are for credit card information.
Merchants transmit transactions to Litle & Co., sending both credit card and check orders in the same file. Litle receives the files, ensures the checking account information submitted is valid, and indicates to direct marketers which orders can or cannot be shipped.
The company settles orders that are shipped either by directly debiting the customer's checking account or by cutting a paper check and depositing it on behalf of the direct marketer. If a check is returned, Litle processes and follows the return on behalf of the direct marketer, just as it does for credit card chargebacks.
"Electronic Check Processing gives our direct marketing clients an easier, faster, more manageable, and more dependable way to process checks," said Thomas J. Litle, the company's chairman. "This enables them to expand their customers' payment options without requiring additional staff, new procedures, extra work, or greater risk."
Whenever possible, the system tries to settle an electronic check transaction via the ACH. When that is impossible, the company produces and deposits a paper check.
"We always attempt electronic means first," said Keith Kennedy, executive director, corporate administration, "but there are some financial institutions that cannot accept payment in any other format than paper."
Another issue the company had to contend with when developing the system was the fact that there's no existing authorization procedure for processing checks in the ACH world.
"With credit cards, if you get an authorization from Visa or MasterCard, you know that the credit limit is available and the card is good right up front," said Mr. Kennedy.
In a similar authorization process for checks, the company confirms, through the Fed, that an account is real and funds available, said Mr. Kennedy. The service benefits direct marketers, he said, by allowing them to accept telephone orders from customers who prefer to pay by check.
It also gives merchants an alternative to cash on delivery, "probably the least preferred method of payment," he said, because of the risk of not receiving payment when merchandise is delivered.
The enhancement has the potential to increase the company's processing volume, said Mr. Kennedy.
The company, which processes for 750 direct marketers, handles 110 million credit card payment transactions a year, totaling $6.7 billion.
With the new system, check transactions may ultimately represent 20% to 30% of its transaction volume, said Mr. Kennedy.
The company expects the payment method to be popular due to "the demand for checks, the fact that this method is an alternative to COD, and the popularity of debit transactions, which is a similar idea," said Mr. Kennedy.