SCHENECTADY, N.Y. -- Seeking to cut transaction costs, Price Chopper Supermarkets here will begin a 90-day electronic check-conversion pilot program this month at its Dunmore, Pa., store. If successful, the 97-store retailer plans to roll it out chainwide starting in January of next year.
This is thought to be the first test of the digital-imaging check readers by a major U.S. supermarket chain, said industry observers.
"We feel that it is going to add greater efficiency at the front end and that there are some cost savings as well, even after the investment," said Joanne Gage, vice president for consumer and marketing services at Price Chopper. The retailer is using electronic check-conversion services from BankServ, San Francisco, and digital-imaging readers from Hypercom Corp., Phoenix.
With the check-conversion system, the digital readers take a photo image of a customer's blank check, capturing the checking account number, as well as the name and address, according to a source close to the test. The check is voided and given back to the customer, but the electronic image will be available if needed later. Customers need to present fresh checks for each transaction. Customers also have to sign a receipt as they would for a credit or debit transaction. Instead of a cancelled check, they get a detailed line itemization of the transaction on their monthly statement.
Retailers benefit from reduced transaction fees that are greater than debit cards but less than checks and credit cards, as well as from faster checkout lines. They also get quicker access to the money as the checks are deposited the same day instead of the following day. Customers save the time involved in writing the check and lose only the one day's float, said the source.
"This latest technology will streamline check processing for the company, lower operating costs, and will very quickly become completely transparent to consumers," Gage said. "We strongly believe that any investment we make in converting to this process will quickly be recouped by the savings we will achieve. Paper-check handling is becoming increasingly expensive," she said.
"Electronic processing brings the cost of accepting checks closer to the cost of debit-card transactions. In addition, consumers are already comfortable with checks, and check conversion still provides customers with 24 to 48 hours of float," she said.
Electronic check conversion will eliminate the 30 seconds to 50 seconds it takes for customers to fill out paper checks, she said. "We are hoping this faster service will further encourage consumers to shop with us. We will be developing educational materials for our customers and careful training for employees to make sure everyone is comfortable with the new procedures. Because our customers trust us, we want the process to be seamless and transparent to them," Gage said.
Retailers have projected between an 8-cent and a 14-cent per-item savings using electronic check conversion, said one industry source. "In the grocery environment, where a merchant the size of Price Chopper is accepting anywhere from 800,000 to 900,00 checks a month, if you multiply that by a conservative figure of 8 cents or 9 cents, that's where the big savings is. If you were to cut that number in half, it would still be real interesting to these guys," he said. Merchants get faster availability on their funds and faster notice on returned items, while eliminating the costs of handling paper checks.
"In summary, electronic check conversion cuts handling time, automates returned-items processing and increases cash flow," said the source.
The Dunmore, Pa., store will be a good test for the system as it has a large concentration of older customers, Gage said. "So I would think that if they accept it, it should go well anywhere. The key is educating the customer about it," she said.
The retailer has high hopes for the program and is confident about rolling it out, she said. "From speaking with our financial-services people, they are quite optimistic. About a third of our transactions are now done by check. So if we can make that more efficient, that should be a considerable savings, not to mention the cost of handling paper checks," she noted.
If an electronic check doesn't clear the first time, it will automatically be run through again, helping retailers get their funds more quickly. In many cases, this will save consumers from returned-check charges, since the retailer will not incur the labor cost associated with check collection. Electronic conversion also reduces the potential for unauthorized use of account information, said the source.
The digital-imaging device used to read the checks is an "Internet-enabled, touch-screen card-payment Web appliance," said another source involved with the project. The device supports traditional electronic-payment and "smart-card" transactions, electronic check imaging and conversion, receipt capture and e-commerce, he said.
"What's good about imaging is not only are you check converting, but now you're also capturing the whole image of the check, which means that you capture the name and address, as well as the phone number. You've captured everything that's on the check, and then the customer would sign the thing right there electronically on the terminal," the source said.