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Initiatives Breathe New Life into Check Payments

Monday, April 10, 2017 ( / Patti Murphy)

Fully electronic checks are a reality. In this, the first in a multi-party series, we look at two specific approaches to electronic checks.
Old payment methods never die; they just change with the times. Few things illustrate this axiom as well as checks. For most of the 20th century, clearing and settling checks was a paper-, time- and cost-intensive process. The introduction of MICR and image capture technologies helped by compressing clearing schedules and driving down costs. And even bigger changes were ushered in by the Check 21 Act, which drove paper out of the clearing process and provided a foundation for remote deposit capture.
Now, a handful of companies are providing check payments that are fully electronic, from initiation through to final settlement; some even support automated receivables posting. In this, the first of a series of articles, we examine solutions from two companies: Malauzai Software and Deluxe Corporation.
Deluxe: Checks via eMail
Deluxe, which has a long and prosperous history with checks and financial institutions, positioned itself as a leading provider of eChecks beginning in 2014 when it purchased the assets of VerifyValid. VerifyValid had developed an online check as a patented fraud-prevention tool, but soon realized it had a broader application, electronic checks.
Deluxe eChecks makes issuing a check as simple as sending email from a PC or smart device, and it’s cheaper than printing and mailing paper checks by about $1 per transaction, the company estimates. But Chris Clausen, Executive Director, Payments and Transactional Services at Deluxe, said cost isn’t the biggest driver of eChecks. Rather, it’s that businesses can reap the benefits of electronic payments without having to make significant or costly changes in their systems or processes. “They’ve invested so much in the infrastructure [that supports check payments]. They don’t want to redesign everything,” Clausen explained. “An electronic payment tool that leverages this [infrastructure] is very exciting for many businesses.”
When Deluxe first began marketing eChecks, its focus was small businesses generally. The company already had a large presence in that market, providing financial and marketing services to nearly 4.6 million small companies throughout the U.S. But soon it became evident, there were vertical markets where payment processes were notably “suboptimal” and that these markets cried out for a solution like eChecks. Student lending and medical payments are two obvious standouts, Clausen said.
Businesses that handle student loan distributions and medical payments both involve a lot of regulatory oversight. Federal regulations for example, require that insurance company payments to medical service providers be electronic. “This is electronic,” said Clausen of eCheck. It comes with all the detailed remittance information and other benefits that accompany checks, yet it clears and posts on a same-day basis.
Meanwhile, student loan companies have unique operational considerations, such as the need to issue large volumes of checks on a cyclical basis. Clausen related how one client was able to issue 6,000 student loan disbursement eChecks in just 9 minutes. “Previously, it had taken two full-time employees an entire day to get out that many traditional checks,” he added.
eChecks are not ECIs (electronically-created items); they are checks as defined by current laws and regulations, Clausen explained. Unlike ECIs, eChecks can be presented in paper form; there’s an option for payees to download and print paper checks which they can take to the bank or use to initiate a remote deposit. But it wouldn’t take much to convert from eChecks to ECIs. “If ECIs become a reality, that makes our product all the more appealing,” Clausen said.
“Hundreds of thousands of payees” are now receiving eChecks through Deluxe, Clausen said, and the company is on track to handle $5.5 billion in eCheck transactions this year.
MOX Pay Mobile Check
MOX Pay from Malauzai doesn’t have nearly the market uptake that eChecks have charted. To date only one financial institution has offered the product, a mobile app that leverages RDC to support electronic check payments, according to Robb Gaynor, Chief Product Officer at Malauzai.
MOX Pay is an extension of a small banking product Malauzai offers to community financial institutions that supports unified payments and collections, and readily integrates with any accounting software. FIs can use MOX Pay to create mobile apps for small businesses which in turn can offer their customers the option of taking pictures of their checks to initiate payments rather than handing over the paper items.
Gaynor said MOX Pay targets small businesses looking for faster, cheaper and “cool” ways to get paid. Blake Pellitier, Senior Vice President and Chief Information Officer at Redding Bank of Commerce, Redding, CA, agreed. Redding Bank has used MOX Pay to create a mobile wallet app for a homeowner’s association. Homeowners snap pictures of their checks which they submit for dues and other payments to the association and the items clear as checks, electronically.
“Creating these apps for local businesses enables them to reduce credit card transaction processing fees as well as paper check handling,” Pellitier said. “Consumers already understand RDC, so it’s an intuitive progression for them to use this functionality to make payments.”

Next up: MyEcheck and Viewpost. Are you aware of other innovative electronic check applications? Contact  so we can research and include in this ongoing series.


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Steve Stone

There are many in the banking industry, including payment attorneys and Federal Reserve representative, who might take exception to the position of Deluxe that "eChecks are not ECIs" ("Initiatives Breathe New Life into Check Payments," April 10, 2017). Federal Reserve Operating Circular 3, 1.3(d) says, in part "Data sent to a Reserve Bank in the form of an electronic item is not an “electronic item” unless the data was captured from a check. By definition, the check from which the data was captured must be paper." In other words, when an eCheck is created digitally and rendered as an image or "pseudo-check", it wasn't created from a paper item and it therefore is not covered under current check law, including the Uniform Commercial Code Articles 3 and 4 and associated regulations (like Reg J and Reg CC). Any Electronic Payment Order (EPO) or Electronically Created Item (ECI) can be printed at some point along its life cycle, but that doesn't make them "checks", either. And the VerifyValid web-site advises customers that they can print the PDF, cut on the dotted line, and "deposit at bank like any other check". I don't know about any other banks, but our tellers would be very skeptical of accepting for deposit a check printed on plain white paper without a signature. Fundamentally, eChecks are EPOs. They don't have standing under current check law.
April 21, 2017, 10:14 AM