New POS Opportunity: Electronic Check Conversion

Thirty years ago, the Federal Reserve predicted that paper checks would disappear, but in 1999, American consumers were still writing almost 18 billion checks at the point of sale (POS), totaling $635 billion. And, even with the slight increase of debit acceptance, checks are still the preferred form of payment for many consumers - much to the dismay of retailers that have been burned by bounced checks. Electronic check conversion is a simple addition to any POS configuration that converts paper checks into electronic transactions and processes them much like credit cards. By selling retailers on the concept of check conversion, VARs can create an ongoing revenue stream based on additional hardware sales and per-transaction fees.

Zero In On Check Processing's Pain Points
Golden Merchant Services (Moreno Valley, CA) is an ISO (independent sales office) for Cynergy Data (College Point, NY) and is among the top sellers of electronic check conversion service. Cynergy Data, a systems integrator/payment processor, provides merchants nationwide with payment processing programs that are powered by Global eTelecom, Inc. (Destin, FL). Cynergy Data has more than 350 ISOs across the United States to offer various electronic processing options to retail, restaurant, mail order, telephone order, and Internet businesses. Its services include credit and debit processing, check conversion and guarantee, electronic gift certificate processing, and equipment leasing and sales. Golden Merchant Services focuses its sales on the Hispanic retail market of southern California and Arizona. The ISO deals mostly with mom-and-pop businesses that process about $1,000 to $15,000 per month in check transactions, but recognized that many smaller retailers are leery of accepting checks. "I walked into a meat market one time, and the owner had $2,400 worth of bounced checks stapled to the wall," said Gonzalo Cantu, president of Golden Merchant Services. "He thought that by posting them there, it would embarrass the customers into making good on their payments."

To combat retailers' fears of bounced checks, Golden Merchant Services sells the concept of electronic check conversion technology. Cynergy Data supplies its ISOs with the terminal, the processing, and the packaged hardware and software they need to install a check conversion system. The installation takes the ISO about 45 minutes. Similar to a credit card transaction, check information is scanned through a check reader terminal from companies such as MagTek (Carson, CA) or RDM (Waterloo, Ontario). The check readers are easily connected to any stand-alone payment processing terminal or integrated electronic cash register. Cynergy Data routes the transactions to Global eTelecom to be processed by the Federal Reserve Automated Clearing House (ACH) network. The approval or decline of a check is based on the check writer's approval status as accessed by Global eTelecom. If approval is granted, the system electronically debits the customer's account through the ACH network and credits the retailer's account. The customer and the retailer retain authorization slips, and the funds are guaranteed to be deposited directly into the retailer's account within 48 hours - days faster than manual check processing - thus eliminating the fear of insufficient funds. Not only is it faster at every step of the process from cashier to bank, but the retailer eliminates handling fees that could save a merchant 11 cents per check. Once the check information is electronic, the merchant hands the check back to the customer.

Expanding Your Customers' Sales Increases Your Revenue
Cantu and his team of 11 sales representatives convince retailers to adopt electronic check conversion by explaining the convenience of not having to go to the bank to deposit checks, the security of guaranteed funds, and the peace of mind of not having so much cash in their registers. "If the retailer announces on the street that it only accepts cash, it is just asking to be robbed. With electronic check conversion, the authorizations are guaranteed and the funds are electronically routed to the retailer's account. It is convenient and smart," Cantu said. "I also explain to my customers that the technology is a good investment because their businesses will grow 30% to 40% by accepting checks."

Cantu said his company fights for its customers against large payment processors like Merchant Data, Telecheck, and Lynk Systems, but his personalized service and ability to negotiate his fees helps him secure his sales. Because Golden Merchant Services targets predominantly Hispanic neighborhoods, its bilingual sales force also helps make its customers comfortable with the company and therefore the technology. Cynergy Data offers bilingual customer service and technical support 24/7. The company even offers its merchants a monthly processing bill in Spanish.

Checks are a fixture in American business and will remain popular among consumers. While check payment has changed significantly over the years, retailers can advance with electronic check conversion, and VARs can grab a piece of the action by providing the personal service small retailers desire.