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Despite the best efforts of card-industry backers, checks are not going away. Americans wrote 30.6 billion checks for a value of $41.7 trillion in 2006, the most recent figure available from the Federal Reserve's 2007 Payments Study. Though that volume is down 6.4% from the 37.6 billion checks written in 2003, it is not symptomatic of the demise of checks.
"Checks are ingrained in the American psyche. People are not going to change that behavior," says Mike McCormack, consultant with Fort Lauderdale, Fla.-based Noblett & Associates LLC. "They're still writing checks." Consumers especially like checks for recurring monthly bills, such as mortgage and utility payments. What might appeal most to ISOs and agents looking for ways to boost revenue is that the average value of checks increased from $1,104 in 2003 to $1,366 in 2006. And, the study found, the overall value of ACH transactions-checks converted at the point of sale or in the back office to an electronic transaction-increased 28.5% to $31 trillion in 2006 from $24.1 trillion in 2003.
"There's still a good market for traditional paper checks," says Don Singer, senior vice president of EZCheck, a Houston-based check-processing company.
"While checks are declining, they are still the largest noncash payment category," says Michael Murphy, vice president of marketing for Waterloo, Ontario-based RDM Corp., which makes check-imaging hardware and software.
"It's a generational thing, and business-to-business checks appear to be continuing," he says. ISOs can find money making opportunities by offering such check services as check guarantee, remote-deposit capture or automated clearinghouse point-of-sale conversion.
A Check List
When planes were grounded following the Sept. 11, 2001, attacks, the U.S. system for clearing checks also shut down, says RDM's Murphy. At that time, the banking system cleared checks by physically running them through the computer system of the check writer's bank. Check 21 legislation, adopted in 2003, made it legal for banks to accept electronic images of checks, eliminating the need to physically transport those checks to another bank and created a demand for check-imaging equipment and software.
"Obviously this speeds up the check-clearing process," Murphy says. "You're not transporting physical hard copies of checks, and customers have faster availability of their funds."
ISOs soon discovered revenues from the sale of check services could augment credit and debit card-processing residuals.
The challenge is finding receptive merchants. Many merchants field scores of calls each month from card-services salespeople and wield a resilient resistance to talking to another salesperson, so ISOs should consider nontraditional markets, where the merchant may not realize electronic check services could aid their business. "Targeting retail merchants is not the only market for these [products]," says Christian Murray, director of business development at Global eTelecom Inc., a Destin, Fla.-based check processor. "Personal checks have been on the decline for years but are still alive."
The persistence of checks means many merchants still physically must take checks to a bank for deposit. ISOs could sell these merchants check-imaging and processing services that enable them to deposit checks from a back office of the business.
"Half the battle is knowing where to look for these clients. Back-office and remote check processing is becoming mainstream, and ISOs are penetrating these markets more frequently. ISOs should focus some efforts on the nontraditional back-office environments," Murray says.
For instance, ISOs should consider selling check services to health care and dental providers or property-management companies, he says. "That's where you'll see the higher-volume opportunities. They'll be more stable and tend to have larger tickets and yield higher profits for the ISOs," Murray says.
Opportunities
Remote-deposit capture presents many new opportunities for ISOs because it does not have the same restrictions as ACH, Singer adds. Checks processed through the ACH network are limited to personal checks under $25,000. "[Remote-deposit capture] opens a broader base of prospects," he says. Remote-deposit capture has many benefits, Murphy agrees. "It is a perfect add-on service for ISOs to offer who have an existing credit- or debit-card relationships with a particular merchant or business," he says.
Agents might be able to generate equipment revenue, too, a feature that has diminished on the card-processing side of the business.
Scanners that can create electronic images of checks can be sold or leased to the merchant. Some devices have check-scanning devices built into a POS terminal. ISOs also can receive per-transaction fees similar to credit card residuals.
Offering check services can be profitable for ISOs. "There's upfront money from equipment leases and more significantly from the residuals," Singer says. ISOs typically receive a flat monthly service or support fee as well as a per-transaction fee, he adds.
The ongoing revenue stream from a steady check customer is a definite advantage, says Brian Wasserman, president and CEO of Transactional Services Inc. The Winter Park, Fla.-based ISO offers check-by-phone, ACH and remote-deposit capture services. "With the ongoing revenue, you make your money on a constant basis," Wasserman says.
Offering Additional Services
Besides remote-deposit capture, ISOs can offer their customers check-guarantee programs. They can offer ACH programs with or without a guarantee, Singer says. The guarantee means that the check company will pay the merchant even if the check is bad. The check company than pursues the check writer to receive payment.
"There's still a good demand for traditional paper-check guarantee," Singer adds. "A number of businesses want their bad checks covered, especially while the economy is struggling."
Other products that ISOs can offer include check-by-phone, recurring ACH payments or wireless check conversion.
Check-by-phone programs especially are popular with products advertised in infomercials, Singer says. This conversion allows merchants to accept checks over the phone and process them over the ACH network.
Other examples of potential clients include tanning salons and health clubs that could benefit from recurring ACH programs because they often bill their clients monthly. This program allows merchants to automatically deduct a monthly fee from a customer's checking account. "There's good growth there," Singer says.
Another check product is designed for the mobile merchant. Remote businesses can use wireless check conversion so a mobile merchant can accept checks electronically. For instance, a tow-truck driver can use a wireless device to convert a customer's check into an electronic payment at the site, Singer says. This provides a guarantee that the payment is good.
All of these products have a profit potential in one ISO's view. MLS Direct Network Inc. offers standard check-guarantee conversion, says Andy Pitts, president of the Birmingham, Ala.-based ISO. "It means the check is guaranteed. The merchant has no responsibility."
There is definitely a demand for these services, Pitts says. "We still think the check arena is a very good market, especially with the economy dipping down," he says. "We've seen a lot more interest in check guarantee and conversion. It's a profitable area for us."
Transactional Services recently began offering remote-deposit capture, and it found that clients value the service. "It certainly can be profitable," says Wasserman. Transactional Services first began offering the services to health care companies to use for their accounts-receivable check processing.
"We found that not only was there a tremendous need in our target market, but in peripheral industries that service that market as well," Wasserman says.
Customers have appreciated the processing speed. In most cases, funds are available the next business day. "The process is much faster than with paper checks," he says. When looking at potential customers, Pitts says his company looks at the volume of checks a merchant handles. That will help determine the equipment and pricing offer made to the merchant.
Checks Not A Priority For All
Despite other ISOs' contentions that check programs are a viable service, some ISOs believe it is not worthwhile to offer these services.
"If someone wants check services, we'll set it up for them," says James English, president of Card Payment Systems Inc., a Stow, Ohio-based ISO. "But it's not something we push."
With most businesses now accepting credit cards, English says he believe checks are "fading out" and that the numbers of check payments will continue to decline. "I don't think it's bringing us business, and it's not a way to attract additional business," he says. "Check products are so minute. We'd rather focus on other things like cash advance."
Check services may not be the right product for every merchant because merchants with very low volumes of checks may see a higher per-check cost than would a merchant with larger check volumes.
When meeting with customers, the agent should ask how many checks the business processes on a daily, weekly or even monthly basis. A merchant that only receives three checks per month does not need a check service, but one who has 30 or more checks can benefit from a check service, Singer says.
Wasserman's sales agents present an entire package to merchants, which can pick and choose what services they want. "A lot of merchants are interested in the different check services," Wasserman says. "Some just take check services, some take credit card services. Others take both services if they see a need for it."
Listen To the Merchant
Selling check services is similar to selling any other product, he adds. It starts with identifying the customer's needs. "It boils down to listening to the merchant. Let them tell you what they want to accomplish," Wasserman says. "If you're really listening to the merchant, you can identify their needs and present a solution."
If ISOs and agents seriously want to pursue the check-services market, they should not sell these services simply as an add-on, McCormack says. They should consider leading with their check services in the sales pitch. This will bring check services to the forefront of the discussion, he adds. When offered as an afterthought, merchants tend to glide over check services and not take it as seriously, McCormack says.
Still, for some agents, the need is to get them to consider check services as an important part of the sales pitch. A challenge, however, is moving check services to the forefront of the sales pitch.
"Typically for us, check services are an add-on service to the credit card piece. I guess we are just so ingrained in credit card products that it's what we're used to promoting," says Pitts.
"Try to sell a solution for a defined problem," McCormack says. For instance, agents can ask merchants if they have had a problem with collecting on bad checks or if they want to speed up fund availability.
Offering solutions to these types of problems may be a way to gain a customer's check business, McCormack says. "It can take only one or two bad checks for someone to realize he has a problem and needs a solution."
