ELECTRONIC SYSTEM CUTS CHECK LOSSES, BANK FEES

DEENA AMATO-McCOY

OAKLAND, Calif. -- Piedmont Grocery Co. here is significantly reducing both its check losses and check-processing costs with the use of an electronic check-acceptance program.

"We are now collecting almost 95% of all returned checks, whether it is through second submissions or the fact that electronic transactions get payment 'seniority' over paper items," said David Larson, president of Piedmont. "In addition, we have reduced our returned checks by at least 60%."

The electronic check-acceptance system has also enabled Piedmont to reduce its check-processing expenses.

"We are saving between $700 and $800 a month on check processing alone, not including payments on returned checks," he said.

"We were having a serious problem with closed checking accounts and felt we needed more control over those returned checks," added Larson. "In the past we had no history on these accounts until we would get the returned check from the bank a week or 10 days later. Now, as long as we have a customer's history on file, we can reject the check instantly at the point-of-sale."

Shoppers write a check at the checkout, and a magnetic ink character reader scans the check's number and account number. The MICR data is electronically sent to an electronic check acceptance network for verification.

The check data is electronically compared to data stored on the negative check file, and is verified based on parameters set up by the retailer. Once the network authorizes the check as acceptable, the paper check is returned to the customer. In contrast, traditional check payments can take 10 to 14 days to clear though a third-party clearinghouse.

If the network verifies the item, a receipt detailing the transaction is printed and given to the customer. If the negative check file contains no history for this customer's account, the cashier is prompted to get a customer signature, which is converted to the electronic file. Since installing the system last July, Piedmont has increased the payment rate of its returned checks.

Currently the electronic check-transaction unit, provided by Bankserv, San Francisco, operates as a stand-alone unit at Piedmont's front end. The retailer would like to see the electronic check transactions integrated into the POS system.

"We need to work with the banking industry to make this a reality," he explained. Larson hopes to see the systems integrated in one year.

The terminals that process the electronic transfer of data and print customer transaction receipts are provided by VeriFone, Redwood City, Calif.