A Big BOC Processor Looks for Big Growth for the E-Check in 2008

Introduced only last March, the back-office conversion (BOC) e-check application is poised for a big year in 2008, according to a check-services vendor that is processing more than one-third of all BOC volume. “We think there's going to be big growth for BOC in 2008, and we're going to be a driver,” says Barry Nordstrand, president and chief executive of Solutran Inc., Minneapolis. Two unnamed national chains are using Solutran to pilot BOC at more than 400 stores between them through a service called SPIN, for Solutran POS and Imaging Network. Solutran is now commercializing SPIN, and Nordstrand says the two chains are planning “aggressive rollouts” this year. Several more retailers are in the process of implementing the service, as well. Almost all of Solutran's BOC volume is coming through SPIN, which allows merchants to outsource BOC by sending electronic files with MICR data to Solutran. Merchants then follow up by shipping checks later via armored courier. With BOC, a store equipped with a single scanner can convert bundles of checks at once into electronic formats for processing through the automated clearing house network. In the third quarter, Solutran accounted for 34% of the 843,743 BOC transactions reported by NACHA, the rules-setting organization for the ACH. While that translates into almost 286,000 payments, Nordstrand says Solutran's fourth-quarter number is more than 1 million. NACHA has not yet reported fourth-quarter statistics. BOC recorded 248,919 transactions in the second quarter. “We're only scratching the surface,” says Nordstrand. “We are truly just getting started.” Nordstrand says BOC has some appeal to many large merchants because it allows them to convert checks to electronic transactions without equipping each lane with scanners, which can run up to $1,000 apiece. NACHA's point-of-purchase (POP) e-check code has struggled for many years in part because of that expense, though it has gained new life lately with a chainwide rollout by Wal-Mart Stores Inc. But when Solutran began calling on its merchant clients last year to sell BOC, many still balked at the expense of installing scanners and imaging software, Nordstrand says. Though big merchants accept large volumes of checks, that volume is spread across hundreds or thousands of stores, making it harder to justify the expense of installing equipment. “The driver is checks per location,” says Nordstrand. “When we started talking to them we got negative feedback about BOC.” That led to the introduction of SPIN to allow merchants to outsource BOC (Digital Transaction News, May 8, 2007) and avoid the costs of added gear. With SPIN, Solutran takes over the chores of imaging, storing, and destroying checks. For non-consumer checks, which are not eligible for ACH processing, it sends images to paying banks via image-exchange networks. Nordstrand says the service's costs are anywhere from 50% to 70% less than what merchants pay to process paper checks, while at the same time offering faster settlement time through the ACH. With Solutran processing entries on Sunday, even weekend receipts can be credited to merchant accounts by Monday morning, he says. “Those things have made the economics compelling,” he says. For competitive reasons, he won't say what Solutran's per-transaction charge is for SPIN when fully bundled. Not that SPIN hasn't hit some speed bumps. For one thing, many merchant IT departments spent much of 2007 dealing with the Payment Card Industry data security standard (PCI), a major mandate from the bank card networks that crowded out other projects for long stretches of time. “That really slowed us down last year,” notes Nordstrand. But now, he says, the PCI compliance logjam seems to be clearing. “Our biggest issue has been getting our program out of pilot, and now it's out of pilot, we're rolling it out and scaling it,” he says.