ventually, merchants will embrace check imaging at the POS. But it will take time, several industry veterans predict, and initially, most check truncation and imaging will take place in merchant back shops.

"Merchants are just now dipping their toes in the water of remote deposit solutions for use in the back office," said Karen Kaukol, Vice President of Product Innovation at First Data Commercial Services. "These [transactions] are ultimately settled as an image or IRD."

Image replacement documents (IRDs), more commonly known as substitute checks, are paper documents that can be used in lieu of original checks when those originals have been truncated, for example, by merchants accepting check payments or bank clearing payments.

"Electronic check conversion, processed through the ACH, will be the predominant force for some time to come," said Paul Rasori, Vice President of Marketing and Product Management at VeriFone, a POS equipment manufacturer. "There are companies that are starting to come out with back-office imaging solutions for merchants. There is no way [currently] to process a Check 21-style transaction at the POS."

Bob Ficcara, Vice President of Partner and ISO Relations at CrossCheck Inc., a check approval and guarantee company, said that once MLSs have a viable check imaging program to offer merchants, virtually every business is a potential customer.

"Check 21 has not taken off primarily because there is no compelling financial reason," Ficcara said.

He expects that the business case will improve as fewer checks written drive up processing costs at banks, which, in turn, will pass these increases along to merchants. That's where the ISOs and MLSs come in. Once a merchant's paper processing fees increase, it's the perfect time for an MLS to come in and offer lower cost, check imaging solutions.

"This is like when dial-up [POS] terminals first came out," Ficcara said. "There will be frustrations, including with compatibility and design. However, those that position themselves to be in the middle of the revenue stream of the second largest payment next to cash will have a huge upside."

"Check 21 has big implications for the future," Kaukol said, however, both future and current merchant check solutions will have to share market space with ACH payment options. "We are feeling very bullish about POS check conversion," she added. "It's an education process with the merchants. They are very open to it."

With ACH check conversion, checks written by consumers are truncated by merchants, either at the POS or in back-office operations.

Once checks are converted to ACH items, they cease to be treated as checks and instead become electronic payments subject to federal EFT laws and NACHA rules. NACHA recently amended its rules to support back-office check conversion, beginning September 2006.

Ficcara isn't bullish on ACH check conversion, at the POS or in the back office. He expects that image exchange will outmuscle ACH conversion. The ACH's primary disadvantage, he said, is that it does not allow processing of business to business checks, which are a substantial portion of all checks.

"The decision to use ACH check conversion or check imaging comes down to a merchant's needs and business plans," Kaukol said. "This is something that [the salesperson] needs to be aware of. We've started conversations [with merchants] talking about Check 21-based solutions and ended up moving over to ECA." (ECA is the name First Data Corp.'s TeleCheck gives its check conversion product.)

Rasori cautioned that it's important to distinguish between check conversion and check truncation. "I've seen more than one Web site talking about Check 21 with a lot of enthusiasm, when, if you look closely, they're selling the same old ECC [ACH conversion] product. It's easy to be misled by some of the terminology," he said.