BOC Will Remain a Minor League E-Check, Expert Says

In the 18 months since NACHA introduced an electronic payment method that lets merchants convert bundles of checks in a central location, it's become clear that the method?known as back-office conversion (BOC)?isn't likely to have a big impact on retailers' paper-check volumes. That's according to Bob Meara, a senior analyst at Boston-based researcher Celent LLC, who spoke on BOC in a teleconference Thursday. “This is no category killer,” Meara said of BOC. This result, Meara said, surprised him and a number of other observers who saw BOC as embodying a number of fixes for an older e-check method for merchants, known as point-of-purchase conversion (POP), that had languished for years. Indeed, Herndon, Va.-based NACHA, which governs the automated clearing house network, launched BOC in March 2007 in response to disappointing results for the then 8-year-old POP method. “The thinking was BOC would reduce the cost and complexity vs. POP,” said Meara, whose presentation was sponsored by Onsiteconferences.com, an organizer of teleconferences on banking subjects. “I was one of many who subscribed to this?the thinking was, holy smoke, this [BOC] is a slam dunk. Well, we were proven a bit wrong.” One reason for BOC's lackluster performance, ironically, is that POP has soared in recent months, boosted in large part by Wal-Mart Stores Inc.'s decision last year to use the e-check method in all of its stores. In addition, as Meara pointed out, other major merchants including Office Depot Inc. and Meijer Inc. have rolled out POP. Meanwhile, Hy-Vee Inc., Target Corp., and Kohl's Corp. have rolled out BOC or are in the process of doing so. Merchants are concluding that POP isn't as operationally complicated as they thought, Meara said, because many already use check-verification and ?guarantee services. Two-thirds of those surveyed by Celent already use these services and so can capture check MICR lines at the point of sale, and of these, 75% have POS printers, which means half of merchants have the equipment already in place to do POP, Meara said. This result reflects sentiments expressed by merchants that had adopted POP and spoke this spring at a conference sponsored by NACHA (Digital Transactions News, May 22). With POP, merchants convert checks to ACH debits by having cashiers run them through a reader at the cash register. Cashiers then hand the check back to the customer, from whom they must obtain an explicit authorization to do the conversion. Merchants that use BOC can do the conversion at the end of the day in a central location, or “back office,” require only one check scanner, and don't need customer authorization, though they must post in their stores a sign indicating that the conversion will happen. While BOC grew to 9 million transactions in the second quarter, POP volume hit 122.4 million transactions, up from 115.3 million in the first quarter. Meara said BOC is not likely to take more than a 30% share of all merchant e-check volume from POP. Still, the declining volume of paper checks at the point of sale is likely to limit the long-term growth of both e-check applications, Meara said. Total e-check volume at merchants will enjoy strong growth until 2009, but then will level out at around 1.1 billion items annually, he predicted. After that, e-check volume will begin to fall as check volumes continue their long slide. The outlook for BOC probably would have been different had this method been introduced before POP, instead of the other way around, said Meara. “In retrospect, had BOC been invented first, we would have seen a very different adoption rate,” he noted.