ECHO's New POS Check Process

A nother leading provider of electronic payment services is getting into the check conversion game. Electronic Clearing House Inc. (Nasdaq: ECHO) recently became certified as a third-party acquiring processor for a new point-of-sale check service being piloted by Visa USA. This new process allows financial institutions to offer merchants the ability to convert checks from any bank into electronic funds transfer items at the point-of-sale. If the check writer's financial institution has chosen to participate in the Visa POS Check Service pilot, the account balance is immediately authorized for the merchant by the participating bank.

Under the terms of the agreement, checks from financial institutions that have chosen ECHO as their third-party processor will be routed to ECHO's ACH processing system and the NCN database, which will provide the critical infrastructure enabling electronic conversion, verification and guarantee of such checks. Beginning in July 2001, several major financial institutions have chosen ECHO as their third-party processor to initiate their participation in the pilot program for Visa's POS Check Service. The POS Check Service represents a major new initiative by Visa to enable merchants to receive direct online authorization for checks written against consumer demand deposit accounts, similar to the authorizations provided for credit and debit card transactions. Merchants will be able to convert paper checks automatically to electronic transactions and will have the option of either verifying availability of funds or guaranteeing payment on checks.

Once authorization is obtained, customers are 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. How will this benefit an ISO's merchants? Through this new point-of-sale check process, merchants will have the ability to accept checks with confidence and reduce the costs and hassles of processing paper checks.

Industry research shows that personal checks are used in approximately half of all personal-consumption expenditures, yet less than one percent were converted to electronic transactions. In 2000, consumers wrote approximately 19 billion personal checks at the point-of-sale, costing merchants an estimated $23 billion in check handling, fraud costs and losses.

"We are very excited to be working with Visa USA on this very important, far-reaching initiative," said Joel M. Barry, Chairman and CEO of Electronic Clearing House. "Despite the growth of electronic payments, many Americans continue to prefer the convenience and control of a personal check. This service will expedite the check-out process, provide consumers with greater flexibility and could reduce check-processing costs for banks and merchants.

"For ECHO, this agreement allows us to participate in what we anticipate will be a rapidly growing revenue stream by providing check verification and guarantee services for consumer checks that are not written against participating banks.

"In addition, we plan to aggressively market the POS Check Service to selected businesses where large-ticket check transactions are frequent, so as to allow them to mitigate bad-check risk at a very reasonable cost."