Payments Convergence Driving Electronic Check Conversion

The automated processing of electronic payments is skyrocketing in the U.S., and paper checks are the latest form of payments to take the digital route. The number of checks processed electronically by the Federal Reserve each business day is now around two million, up from just 400,000 in 2003, according to Federal Reserve statistics.

Paul Lufkin, CEO of electronic payments processing and financial services company ePayments Corp. of Denver, Colo., said that while this still represents only about four percent of the total daily check volume, growth in automated processing is starting to accelerate.

"More Americans are becoming more comfortable with paper checks being converted to digital transactions, and more businesses are realizing the cost and time savings associated with electronic payments," said Lufkin. "The convergence of these two forces -- paper and digital -- will dramatically increase electronic check conversion and processing over the next five years."

NACHA, The Electronic Payments Association, agrees, projecting that the number of electronic check payments is likely to reach or exceed one billion annually by the end of this year.

Lufkin said some businesses have increased their profit potential up to 30 percent by allowing electronic check payments. He also detailed numerous other benefits of electronic check conversion, including: faster access to funds, faster processing with lower processing costs as well as reduced bookkeeping and paperwork.

With electronic check conversion, a paper check is scanned and becomes an electronic item at the point of sale or in a business' back-office. Usually within 48 hours, the funds appear in the owner's business account, eliminating trips to the bank and resulting in merchants getting paid faster.

Sending a check electronically through the Automated Clearing House system reduces the labor required to perform cash drawer and back-office reconciliation. In addition, the batching of checks and preparation for deposit is eliminated.

Some electronic check conversion machines even come equipped with electronic check verification (identify individuals who have previously bounced checks), and, electronic check conversion integrates seamlessly with electronic collection of non-sufficient funds (NSF) checks with the returned check collection (RCK) option available through the Automated Clearing House network.

As businesses and government agencies rapidly increase the electronic processing of checks, Lufkin said it has raised some compliance issues; however, by following the correct procedures, millions of businesses and their customers can tap into the benefits of automated check conversion and collection as the nation increasingly goes electronic.