E-check, Please!

There is no doubt that e-checks are a valuable addition to companies’ payment mechanisms. Businesses who do not offer e-checks will be missing out on a sizeable business opportunity says Burt Walker, President of FiNET.

In 2001, more than 200 million e-check payments were made, according to the National Automated Clearing House Association (NACHA). Of these payments 88.7 million originated at the point-of-sale, 74.6 million were initiated on the Internet, and 8.7 million originated via the telephone. Millions of other e-check payments were initiated during pilot projects for telephone and remittance payments.

The growth of e-checks as an effective payment instrument has impelled banks and businesses to offer them as an additional payment alternative to their customers. As a provider of electronic payment services since 1983, FiNET (Financial National Electronic Transfer, Inc.) recognizes the sizable business opportunity e-checks afford.

Burt Walker, President of FiNET, explains, “We got into [business] on the Internet in 1998. Moving into e-checks was a natural progression for us because we were already in the electronic payments industry and always looking at ways to leverage our existing software and capabilities.”

Walker says dealing in e-checks exclusively was a strategic business decision that enabled them to build upon their core competency. “We considered whether or not we wanted to be in a turnkey operation, but what we did instead was partner up with various other gateway operators that do provide that. [e-checks] happen to be our core competency - it’s what we do best. We’re not experts in the credit card world. There are other businesses that do that and have been doing that better for some time – we didn’t want to re-invent the wheel.”

Walker explains that more companies are moving into the e-check arena as their primary business because they see it as a valuable market opportunity. “There are probably a dozen or so electronic payment companies right now of good size that deal exclusively with e-checks. What we’re finding is that a lot of credit card payment businesses are trying to get into this because they see the niche there. And the niche is sizable enough that they can’t ignore it any longer. So, what we’re finding now is we have to compete against the larger, well-known payment companies.“

Despite tough competition from big players in the electronic payments market, FiNET remains successful because of its leading edge e-gateway service, eftPRO, which was designed specifically to allow businesses to accept direct payments from consumer or business checking accounts. What sets this gateway service apart from its competitors is its first-rate verification and authentication system that ensures top-level protection against fraud and security breaches during e-check processing.

eftPRO's proprietary, rules-based verification system allows merchants to define the rules under which e-checks can be accepted, providing customized solutions for all merchants and empowering them to decide from whom they will accept e-checks.

Walker also says that success in the e-check market depends on how much businesses really understand the ACH network. The ACH system (Automated Clearing House) was developed in the 1970s in the banking industry to replace the paper check. The operating rules and business practices of the ACH are formulated and enforced by NACHA, the industry’s trade association, which is responsible for rules development, management, and enforcement of the ACH network.

“What we’ve found over the last year is we’re starting to see the method of how e-checks get processed get more conventional - more standardized I would say. But prior to that there were a lot of entries into the market that jumped in without fully understanding the marketplace or the ACH system. Some of them have gone by the wayside. And the ones that are surviving are the ones that really understand the ACH business well.”

With a large, credible organization supporting e-checks, businesses are more willing to accept e-checks as an alternative payment method. Walker says, “E-checks are becoming a mainstream product supported by NACHA – and so they created a specific type of transaction that was defined specifically for this and they developed some rules on how they’re supposed to work. Once that happened, once it became usable and established within the NACHA community, then we started to see a heightened interest in e-checks.”

Of course, large opportunities in the e-check market can’t be ignored. There’s a fairly substantial market of people who can’t use or won’t use credit cards for their purchases. Walker explains, “I was at a NACHA convention a couple of weeks ago - and one of the stats provided that surprised me was that 70 percent of all credit card holders are within 5 percent of their limit. What that means is there are consumers who would prefer not to pay with their credit card for fear of going over their limit or would rather use money they have in their checking account. And, then you have many people who don’t have credit cards, which according to our estimates is over 50 million consumers.”

The opportunities and increased interest in e-checks means electronic payment companies need to be selective in deciding who receives merchant accounts allowing them to accept e-checks. Walker explains, “Because there’s risk involved with us as the underwriter and with the merchants themselves, we have to be very careful about explaining those risks to the merchants. They don’t understand why there’s risk at all. We have to ensure they understand that we do have to apply limits just like we have to do with credit card merchant accounts.”

Many start-up companies are particularly interested in e-checks. “It was a bit of a surprise to find out that about 80 percent of the applications we get are from start-up operators,” explains Walker. “But, we have found a revenue model that works for us, and smaller businesses.” The company offers a "more as you grow" plan to smaller merchants, where modest transaction and dollar thresholds are established, enabling them to minimize financial risk and provide merchants with an avenue to get into electronic commerce with minimal credit problems.

Walker also says that business-to-business is a strong segment for e-checks. “We’re starting to see a heightened interest in the B2B market because we’re finding that a lot of businesses are still uncomfortable paying with a credit card. They’re still used to their old accounts receivable and accounts payable business units where checks are the standard method of payment. They’re still used to using checks and the e-check model fits more easily into their current model of operation than credit cards.

The B2B market also tends to spend more on purchases. Walker says, “In the consumer oriented market what we’re finding is most of the transactions are in the $200 level. I would say that was an average. But that it can be broken down further because it depends on if you’re dealing with Internet type payments or call center arrangements. With call centers, you’ll find that those are higher dollar ticket items and this affects the average a little bit. Internet transactions are probably a bit lower than $200 on average. But when you get in to B2B we’ve had customers who wanted to do $5,000, $10,000 or more in single payments.”

There is no doubt that e-checks are a valuable addition to companies’ payment mechanisms. Businesses who do not offer e-checks will be missing out on a sizeable business opportunity. With almost 20 years in the electronic payments industry, FiNET has strongly positioned itself as an expert on e-checks and is ready to cater to growing demand in this market.