Personal checks are popular among consumers, but costly to merchants and financial institutions. Visa U.S.A. hopes to bridge this gap by piloting a new point-of-sale check service that will reduce check handling and fraud costs.
The service is a new check acceptance system providing direct online access to consumer demand deposit accounts for authorization, similar to credit and debit card transactions. Other existing check acceptance systems typically rely on a variety of historical databases or negative files to electronically process check transactions. The POS Check Service is powered by VisaNet, which currently processes transactions for more than five million merchants and reaches 90% of the country's demand deposit accounts.
Several Visa member banks have signed on to pilot the POS Check Service including U.S. Bank, First of Omaha Merchant Processing, Provident Bank, T-Tech (a subsidiary of First Citizens Bank) and BB&T. All pilots of the POS Check Service are slated for July activation.
"We believe this presents a great opportunity to provide our customers with more efficient check processing capabilities and enhanced fraud loss protection at the point of sale," according to Nick Baxter, president, First of Omaha Merchant Processing.
Visa developed the service in response to bank and merchant concerns over inefficiencies of paper check handling and consumers' desires for a greater variety of convenient payment products, said Candace Lilly, vice president for emerging markets and technologies at Visa U.S.A.
For check writers, the POS check service will expedite the checkout process, increase their ability to write out-of-state checks and provide increased check transaction details that will be included on their monthly bank statements.
Personal paper checks are used as payment for approximately half of all personal consumption expenditures, according to Visa. In 1999 alone, U.S. consumers wrote an estimated 19 billion checks at the point-of-sale. In that same year, merchants incurred an estimated $23 billion in check handling and fraud costs and losses averaging more than one dollar for every check written at the point-of-sale.
Under the POS Check Service, checks written at merchant locations are scanned through a check reader at the point-of-sale, which captures the account, check and bank routing numbers along with the amount of the purchase. This information is then routed either to participating banks for authorization of the check amount or to third-party authorizing agents for authorization of check amounts on other checks.
Once authorization is obtained, the customer is required to sign a separate sales receipt authorizing the conversion of the check transaction to an electronic transaction. The merchant then voids the paper check and returns it to the customer along with his or her signed sales receipt.
The POS Check Service provides merchants with options for verifying and guaranteeing checks. Under the verification option, the check is accepted or declined once the check writer's bank or a third-party authorizing agent verifies the probability that the check will be paid based on information from the check writer's demand deposit account or a third-party risk management database. The verification option reduces the risk of loss to the merchant.
Under the guarantee option, a POS Check guarantor purchases the transaction from the merchant at a discount, eliminating the risk of loss to the merchant. The guarantor accepts or declines the check based on information from the demand deposit account or a third-party risk management database.