Companies that make money verifying point-of-sale checks for merchants are taking steps to minimize revenue loss from declining check use.
Some are trying to land new merchant customers, others are offering new services, and all seem to be benefiting from banks' discontinuation of verification services.
Cindy Knowles, the vice president of marketing and inside field operations at the check verifier and transaction processor Certegy Inc., said banks are growing "less and less receptive" to merchant calls to make sure a customer's check is good.
That is translating into an opportunity for Certegy, Ms. Knowles said.
Some banks eliminated their verification services years ago, and others have done so more recently.
AmSouth Bancorp dropped its automated call-in verification system last summer, said AmSouth spokesman Rick Swagler.
People using the Birmingham, Ala., company's service could verify that an account had enough funds to cover a check, but the system could not stop people from calling several times to figure out an account's balance, Mr. Swagler said. There was no way to confirm a caller's identity, so there was no way to prevent someone from trying to obtain this information illicitly.
"We determined it was not a service we wanted to offer," Mr. Swagler said. "It was a customer privacy issue."
Washington Mutual Inc. cited similar concerns when it eliminated verification services in 2002, a few years after Bank of America Corp. dropped them.
The former Bank One Corp. allows its merchant customers to verify checks written on the bank's accounts, but J.P. Morgan Chase & Co., which acquired Bank One last year and is combining the two companies' retail banking operations, does not allow that. JPMorgan Chase spokesman Tom Kelly said it has not decided whether to continue this policy.
A few merchants complained after AmSouth shut down the verification phone line, Mr. Swagler said. But, he noted, "there are other companies out there that provide that kind of service."
One such company is TeleCheck International Inc. of Houston. Shelaghmichael Brown, the president of the First Data Corp. division, said that as many as 70% of merchants do not use a check verification service. That is "a very large potential market" for companies like TeleCheck, she said.
Checks made up 18% of point-of-sale payments in 1999, and debit cards 21%. Four years later debit card use had soared to 31% and check use was down to 15% of POS transactions, Ms. Brown said. "The mix is changing."
Certegy is among those trying to offset lower verification revenue by working harder to acquire new customers. The St. Petersburg, Fla., charges on a per-inquiry basis, typically about 1% to 1.5% of the check amount. It authorized $68 billion of checks in 2003, versus $68.7 billion in 2002, Ms. Knowles said.
She would not provide a 2004 figure but said business from new customers helped Certegy increase its verification volume.
TeleCheck has moved into electronic payments and now controls 75% of the market for converting paper checks into automated clearing house payments at merchant sites, Ms. Brown said. Offering this service takes advantage of the company's merchant relationships and data network, she said.
Verification services are becoming more important to merchants, because the people least likely to stop writing checks are the ones who initiate check scams, Ms. Brown said. "As checks decline at the POS, the checks that are still being written are riskier," she said.
Ariana-Michele Moore, a senior analyst with the Boston market research firm Celent Communications LLC, agreed. "People are moving to cards, but the people who do check frauds are not."
Con artists may eventually try to exploit electronic payment formats, but it will be several years before checks and check fraud disappear completely, Ms. Moore said.
In the meantime, lower check volume "has to be bringing revenue down" for the verification companies, Ms. Moore said.
Ms. Knowles said risk assessment, not check verification, is AmSouth's strength and something that will always be in demand. "That's our heart and soul."
