With all the recent press about the EMV changeover, Apple Pay, and tokenization, it’s easy to overlook the humble check as a payment method. It’s true that check use among consumers has declined in recent years, but it’s important to remember that checks are still popular with many Americans, especially as news stories about credit card data hacks and identity theft make shoppers more cautious about paying with plastic. For mobile merchants, check acceptance can benefit the bottom line—especially now, when it’s easy to access real-time ACH and security tools from a smartphone or tablet.
Why mobile merchants should embrace eCheck technology
Converting paper checks to eChecks reduces risk and builds customer loyalty—an important consideration because some of the most desirable customers still prefer paying by check. According to a 2014 survey by GOBankingRates, today’s frequent check writers include well-heeled Americans with annual incomes higher than $150,000. Consumers over 55 also largely prefer to write checks, and that’s a growing group that includes most of the Baby Boom generation, whose overall spending is on the rise. Overall, 60% of US consumers over the age of 18 still write checks for some transactions, including rent, utilities, bills, and more.
Merchants with mobile eCheck tools can court those with relatively high discretionary income, benefit from the lower processing fees associated with checks compared to credit card transactions, and reduce credit-card chargeback issues. Mobile eCheck also adds a payment option and allows for easy, immediate acceptance of checks anywhere. eCheck transactions are settled quickly, which improves merchant cash flow and allows for easy monitoring of funds. Mostly importantly, eCheck merchant tools can validate accounts before approving or denying a transaction.
Managing risk with eCheck technology
Real-time funds verification is of special concern to small merchants and merchants who vend at special events such as conventions and festivals, where the mix of many shoppers from different locales creates sales opportunities but also the potential for check fraud. With mobile eCheck technology, which verifies keyed in routing and account numbers before transaction approval, these merchants can sell to check-writing consumers while protecting themselves from non-sufficient funds (NSF) and fraud losses—as long as they keep the following in mind.
NSF and fraud are the two biggest risks merchants face when they accept checks, with NSF transactions the greater risk to merchants. The rate of NSF transactions is relatively high among US consumers. A 2013 report by the federal Consumer Financial Protection Bureau found that in 2011, between 20 and 22% of consumer accounts had at least one overdraft or non-sufficient funds activity, with 8% of consumer accounts racking up at least 10 such incidents in a single year. Those figures make it clear that accepting checks, especially from unknown customers and for high-value purchases, entails a fair amount of risk for mobile merchants.
Fraud involving consumer checks has been in decline since 2008, according to an American Bankers Association presentation at BAI Payments Connect 2013. When consumer check fraud does occur, it often involves stolen checks that have been altered to change the name and address of the account holder to match the fraudster. Despite the waning trend, merchants should be on the lookout for this type of fraud due to the potential impact of even a single occurrence; the ABA presentation showed the average deposit account loss per case of check-related fraud was $1,718.
Because of these numbers and their potential impact on the bottom line, mobile eCheck is a better option than paper checks, but it still carries some potential risk for high-value, one-off purchases from new customers. The best use for mobile eCheck payments is to offer them to established customers and perhaps for low-value, one-time purchases with a ticket value of $25 or less.
However, mobile eCheck acceptance can also come with NSF protection. NSF re-presentment tools are available that automatically re-present NSF items at strategic times, attempting to recollect missing funds. Combined with check verification products that validate open accounts, merchants can feel comfortable and secure accepting eCheck payments on portable devices.
ACH technology for mobile merchants
Mobile eCheck technology uses the same process that underpins ACH online payments, which are a popular choice for mortgage companies, utilities, religious tithing, and subscription-based services. Funds are transferred electronically from the customer’s checking account without the time lag and security risks of storing paper checks and transporting them to the bank for deposit.
Current eCheck technology for mobile merchants makes accepting checks a lower-risk, higher-reward proposition. Any merchant that uses mobile checkout tools can offer eCheck acceptance to increase sales, reduce risk, and build relationships with the customers who still prefer to pay by check.
Jeff Kump is CFO of Forte, a technology company that provides innovative electronic payment solutions for banks, financial institutions and merchants of all sizes. Since 2006, Mr. Kump has carefully crafted and expanded the finance, risk management and human resources areas, advancing Forte’s sales, marketing and corporate development and diverse business strategies. Follow on twitter @fortepayments.