Electronic check conversion, a payment service hampered by the bank industry's reluctance to back it with development capital, won a major backer as credit card giant Visa U.S.A. said on Thursday that it plans a pair of pilot efforts for systems it would develop and license to banks.

The technology, which allows merchants to accept checks and treat them as electronic payments at the point of sale, has been viewed by many in the banking industry as an interim step to be avoided if possible. But that view depended on expectations that the popularity of checks as a payment form would fade.

Though credit and debit cards have steadily grown in acceptance, checking remains a fact of life, and as a result many companies are experimenting with ways to streamline the processing of check payments for retailers.

Some 50,000 merchants are already participating in similar pilots. Even so, Visa's participation is expected to move more banks to set up bank-branded check-conversion programs of their own.

The San Francisco-based card association's involvement could pave the way for wider acceptance of the concept because Visa has connections to most banks and merchants. It is planning to help banks get into check verification and guarantee services.

Those businesses are dominated by nonbank vendors, observers noted.

"Visa's entry is important because it is basically a stamp of approval," said Elliot C. McEntee, president and chief executive officer of the National Automated Clearing House Association, the rulemaking body for ACH electronic funds transfers. "Visa is saying this concept is one that will provide benefits to the banking industry and retailers."

Mr. McEntee added, "You are now starting to see other parts of the bank, such as credit and debit card functions, getting interested in developing new value-added services as customers continue to use checks."

Nacha, a Herndon, Va., bank association, spearheaded several check conversion programs in recent years. In September, in an attempt to boost ACH volume, it passed a rule that gave legal support to banks and merchants.

In check conversions, sales clerks scan checks into terminals at the checkout point, capturing the necessary account information. The payment is authorized by the consumer and cleared and settled through an ACH.

Voided checks are handed back to the customers.

Merchants are interested in the technique because it simplifies the funds-collection process, sparing them the chore of depositing checks at their banks. In 1998, some 18 billion checks were written at point of sale in the United States, Nacha estimated. The service would also reduce the amount of checks that banks handle, thus lowering their processing costs.

One of the Visa pilots is with U.S. Bank and Vital Processing Services, a merchant processor equally owned by Visa and Total System Services. The pilot is scheduled to start within a week, officials said. The merchant's name was not disclosed.

The other pilot involves Midwest Payment Systems, a division of Fifth Third Bank; Rocky Mountain Retail Systems; Kincaid Technologies; and Remkes, an Ohio-based grocery store chain. Kincaid Technologies provides software for Remkes' point of sale devices. Rocky Mountain Retail provides check authorization services for Remkes.

American Banker in August reported that Visa was involved in this service.

Elizabeth Buse, senior vice president of Visa, said the association has embraced the concept of using existing Visa network technology for electronic check services. It will make an undisclosed infrastructure investment aimed at connecting point of sale devices to consumers' deposit accounts.

Visa said its authorization network reaches four million U.S. merchants and 90% of the banks' demand deposit accounts. Next summer Visa plans to be in the market with private-label check conversion, verification, and guarantee services that banks could then market to their merchant customers.

Payments will initially clear and settle through the ACH. Ultimately, funds will move through the Visa network, much like funds transfers associated with credit card transactions.

"Banks view us as a good way to get this into the market in a significant way and help them start realizing their economies quickly," Ms. Buse said.

To be sure, other banks have made inroads in developing conversion services for merchants, tying them to cash management and balance reporting services.

First Union Corp. began electronic check conversions in March, using software from Bankserv, a San Francisco-based bank technology vendor, for a service provided initially to 19 HairCuttery salons in the Creative Hairdressers Inc. chain.

And in August 2000, San Francisco-based Wells Fargo & Co. intends to combine its service with electronic collection of returned checks and other cash management offerings such as information reporting and check verification and guarantee. The bank entered into a three-year, nonexclusive agreement with Bankserv.

TeleCheck Services Inc., a Houston-based unit of First Data Corp. participant in the early Nacha pilots, said on Wednesday said that it recently reached a milestone - it has now settled $1 billion of converted checks through its Electronic Check Acceptance service and more than 13 million transactions.

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