BENTONVILLE, Ark. -- A leading industry observer of Wal-Mart said a new pilot the retailer is testing that converts personal checks into electronic payment transactions could end up saving the company a lot of money.
Wal-Mart spokesman Tom Williams told SN recently the retailer began testing the new program, provided by Tele-Check, Houston, in major cities in Texas and nine other states. He declined to give exact locations.
"It's something we are testing and generally when we test a program like this, we don't like to talk about it too much," Williams said.
However, Burt Flickinger III, managing director of Mullen Strategies Group, Wehnam, Mass., said the program, if rolled out to all of the retailer's stores eventually, could possibly save Wal-Mart anywhere from $200,000 to $500,000 each week in cost efficiencies.
Flickinger estimates the retailer can save anywhere from 20 to 50 cents per check by using the electronic conversion system and that Wal-Mart processes about 1 million checks each week.
"There are significant savings to be realized from this program," Flickinger said.
He explained that when checks are presented at the point of sale there are processing delays. Moreover, front-office personnel need to do added paperwork in handling a personal check transaction as well, he added.
However, the handling and processing of the paper-check system is eliminated under the TeleCheck program.
Now, when a shopper pays by check, it is processed through the register, the data is read and recorded electronically, and a receipt is printed for the customer to sign. The check is voided and handed back to the customer and the retailer accesses the funds electronically from the customer's checking account.
At a retailer the size of Wal-Mart, the elimination of the need to manually process 1 million personal checks each week is a big savings.
Industry observers told SN that while other retailers have piloted or are using the same or similar systems, none have been the size or magnitude of Wal-Mart. The pilot is seen as a bellwether for the eventual widespread adoption of this system by other major retailers.
Wal-Mart officials declined to reveal how much it costs to implement this new TeleCheck system or what the expected return time on the investment is.
However, Flickinger said the upside to the equation far outweighs any possible downside.
Price Chopper Supermarkets, Schenectady, N.Y., last year piloted an electronic check-conversion system from BankServ, San Francisco (see SN Feb. 5).
At that time, Mike Gulli, manager of corporate research and development at Price Chopper, said by improving efficiencies in check handling, transaction costs could be reduced by as much as 33%.
Gulli said paper checks are 14.5% of the chain's transactions, but account for more than 23% of its transaction costs.
However, Price Chopper officials said one of the big difficulties was in consumer acceptance.
With banks not reporting the electronic check transactions to consumers on their statements as they were required to, some customers became confused. The transactions were reported as a debit card charge, for example.
Price Chopper did not roll out the system to other stores.
However, Flickinger said he expects Wal-Mart will stick with its new electronic check system.
While Wal-Mart officials would not say where the new pilot was being tested, Flickinger said it was probably in stores in Texas, Arkansas, Alabama, Mississippi, Oklahoma, Missouri, Kansas and Louisiana.
Other retail analysts who regularly follow Wal-Mart told SN that the retailer has a good track record with coming up with efficient retailing systems that eliminate a lot of costs.
Wayne Hood, analyst with Prudential Securities, Atlanta, said that if the system proves to be a more efficient way of handling cash management, Wal-Mart and other retailers will go after it.
"It's definitely a more efficient system for handling the checking process and cash management," Hood said.
"There is no handling of paper," he added.
Gary M. Giblen, director of research for C.L. King & Associates in New York, agreed with Hood.
"It's in the spirit and keeping of what Wal-Mart always tries to do," Giblen said. "It sounds like a good idea. Wal-Mart is always looking for ways to strip out cost efficiencies."
Some analysts balked at the idea, saying that consumers may be concerned about losing "the float" whereby they can write a check on Thursday and not expect it to clear their account for a few days.
Officials for TeleCheck explained that while the check is being converted to an electronic transaction, the money is not accessed from the consumers' accounts immediately. Shoppers will still retain the "float" period.