Electronic checks may have been ahead of their time six years ago when the Financial Services Technology Consortium first demonstrated them, but they are gradually expanding their reach.
On Monday CSFBdirect, the online brokerage arm of Credit Suisse First Boston, said it is allowing customers to both open and fund accounts using electronic checks. The Jersey City firm is among the first brokerages where customers can use the checks to deposit money into existing accounts rather than just using them once to open the account.
Meanwhile, early adopter Wells Fargo & Co. said the use of e-checks that it offers in a partnership with eBay, the popular auction site, grew by 70% in the first quarter. Debra Rossi, the executive vice president in charge of business Internet services and e-payments at Wells, said it and eBay only began heavily marketing electronic checks late last year. Now the banking company plans to begin marketing the service to its 10,000 merchant customers that do business on the Web.
E-checks have become popular, Ms. Rossi said, because "a certain amount of people out there prefer not to use, or don't have, credit cards," and for them the checks are a viable online payment option.
To date, brokerages have been the biggest adopters of electronic checks. Troy Group Inc. of Santa Ana, Calif., is supplying its eCheck Secure technology to CSFBdirect and 15 other Web brokerages, including Ameritrade, Morgan Stanley Online, and Fidelity Brokerage Services.
Because of the difficulty of reconciling e-check deposits with other types of deposits coming into the back office, almost all these brokerages except CSFBdirect now accept e-checks only for opening accounts. But John Panian, president of Troy Financial Services, said brokerages could double their volumes by allowing regular use of e-checks.
"We are ready right now," Mr. Panian said. "It's a question of them being ready to do a marketing rollout and get the word out, and right now the online brokerage business is not doing that well."
Because Troy's volume of electronic checks is mostly tied to brokerage account openings, its e-check growth has been stymied by recent stock market turmoil.
The company's volume actually grew robustly through the first quarter, Mr. Panian said, including 52% growth in March, but that turned around in April when volume fell 61%, followed by a 58% drop in May, which he attributed to investor nervousness about the volatile markets.
CSFBdirect lets its customers open accounts without immediately committing funds, so the continuing e-check funding feature is needed, said Maryann Wasik, managing director of product development at CSFBdirect. "The benefit of using an electronic check comes after opening an account, when people need to be funding their account on an ongoing basis," she said.
Currently most of CSFBdirect's customers send money into their accounts by mail or through wire transfer, Ms. Wasik said. The electronic checks are much faster than mail (they are deposited on the same day if it sent before 4 p.m. eastern standard time) and free, whereas it charges $25 for wire transfers, she said.
CSFBdirect has offered e-checks for about a month, and began marketing the service with banner ads on its Web site last week. The company would not disclose how many customers have signed up for it, but Ms. Wasik said there has been a "very good reaction."
Wells has found that most consumers prefer credit cards to e-checks, Ms. Rossi said. Ninety percent of Wells' customers pay for eBay purchases with credit cards, though the percentage shifts somewhat in favor of electronic checks for items that cost less than $45, she said.
Despite e-checks' gains, some remain doubtful of widespread adoption.
"Online checks in the long term are going to be a dying phenomenon," said Jeetu Patel, vice president of research at Doculabs in Chicago. Electronic checks are not any safer than other payment methods, and do not offer features found on credit cards, such as frequent flyer miles, affinity programs, and credit float, he said.
Mr. Patel predicted that electronic checks would continue to be used by consumers mostly at online brokerages, since transferring funds for stock purchases does not let users take advantage of credit cards' special features.
