s the Federal Reserve begins putting its full support behind electronic check conversion, ISOs have a good opportunity to help merchants understand the significant benefits of new check processing technology while making merchants more competitive.

Electronic check conversion, made possible by technology such as check scanners and other all-in-one devices, is the process of transforming a paper check into a digital file that includes the information currently contained on a paper check - the dollar value of the item, the payee, and the MICR line. Once converted, the file becomes an alternative method of collecting a traditional paper check.

This is vitally important to merchants in an era of shrinking profit margins and increased competition. Electronic check conversion enables merchants to reduce their payment-transaction costs because electronic checks can be processed at a fraction of the cost of debit or credit card transactions.

The emphasis on electronic check conversion is quickly moving to the forefront in the wake of Sept. 11 and the Federal Reserve's support of electronic check collection and other efficiency measures.

In an effort to educate the public about the issues involving electronic check conversion, the Federal Reserve recently published a helpful guide that explains electronic check conversion and outlines the rights and responsibilities of consumers with regard to ECC transactions.

"When is Your Check Not a Check? Electronic Check Conversion" describes electronic check conversion in detail and informs consumers what happens when their check is electronically converted. The guide also tells consumers what they can do if they have problems with an electronic check transaction. The guide can be reproduced for distribution and is available at http://www.federalreserve.gov/pubs/checkconv/.

Reducing Costs Everywhere
When a paper check is converted into an electronic file, the merchant truncates or cuts short the usual check-collection process. An electronic check can be transmitted to a paying financial institution without physical transportation.

As a result, financial institutions reduce their costs with a digital image of a check because it's cheaper than delivering a check by air and/or ground transportation to a data center, where drafts are processed using expensive check sorters.

Additionally, because the merchant's name can be inserted in the electronic transaction, checks that are electronically converted deliver more transaction data than traditional paper check collection. In fact, electronic check images can provide the same transaction details on consumer checking statements as debit or credit card sales.

For ISOs, electronic check conversion represents a good opportunity to help merchants reduce costs while providing them with a new generation of products that will further streamline the nation's payments system by eliminating paper check collections.

Gerard F. Milano is Chief Executive Officer of the Western Payments Alliance. Milano can be reached at 415-433-1230 or gmilano@wespay.org.