Check 21 Spinoff: Back-Office Conversion (BOC) E-Check Volumes To Grow In 2008 & Beyond

Implications: Another spin-off product of the Check 21 Act, Back-Office Conversion (BOC) launched in March 2007 and one year out of the gate, BOC is viewed as a more user-friendly electronic check conversion tool than POP (Point-of-Purchase) transactions, because POP requires that all or most of the merchant's checkout lanes be equipped with check scanners, which are expensive and because checks are returned to the customer during the sale, which slows down the checkout process. In contrast, BOC checks can be converted in the back-office, which speeds up the checkout time and eliminates the need for check scanners at the register. In 4Q07, BOC transactions totaled 3,083,682, which was a 266% increase from 3Q07 with 840,743 transactions. Total BOC transactions in 2007 was 4,189,465, representing three quarters of transaction volumes. Although uptake has been slow because merchants and banks had to put the infrastructure in place to process BOC transactions, BOC is poised for growth in 2008.

Analysis: BOC (Back-Office Conversion) electronic check conversion has captured the interests of transactions processors, banks and their clients, who are interested in reducing high volumes of paper checks and BOC offers merchants and billers faster transaction processing, reduced transportation costs, reduced processing costs and a cost-effective tool for converting imaged checks to ACH debits, which provides faster settlement and posting of funds to the merchant's account(s). BOC is also bringing banks back into the arena of selling electronic transaction services to merchants, which is a market banks gave up years ago to ISOs (Independent Sales Organizations) and transactions processors who dominate the space today.

1.  Converting checks to e-payments may help reduce the number of insufficient funds checks merchants have to contend with and processing checks electronically is also cheaper than traditional paper check processing

2.  One drawback to BOC conversion is that merchants can't convert all checks they accept for payment. Only checks that are drawn on consumers' accounts are eligible and the merchant assumes the risk of signature fraud on checks they convert, whereas with paper checks and image exchange, liability rests with the paying bank

Takeaway: BOC gives merchants, billers and corporate clients 24/7 access to their bank and quicker access to their deposited funds, while eliminating the need for merchants, billers and corporate clients to make frequent trips to their bank. Financial institutions view BOC as a competitive, value-added service for their corporate and merchant clients, and believe they must offer BOC to their clients to remain competitive or face the possibility of losing these clients to competitors who offer BOC services.