Star Expects to Beat Check Imaging to the Punch

With its new real-time check-verification and settlement product announced yesterday, Star Systems Inc. will be offering merchants and transaction processors a service that converts paper checks to electronic transactions just as retailers and financial institutions are preparing for the advent of check-imaging technology. Though Maitland, Fla.-based Star, the nation's largest electronic-funds transfer network, denies that the passage into law last fall of the Check Clearing for the 21st Century Act (Check21) influenced its decision to offer Star Chek Direct, the network argues its product will present retailers and acquirers with an attractive alternative to imaging. Star's new real-time, direct-debit service is available almost immediately. Check21, which will allow banks to exchange check images rather than paper checks, will not take effect until October. At the same time, some observers express doubts about how eager merchants will be to adopt check-imaging, particularly given equipment costs. “We'll have to see what happens with check-imaging at the point of sale, how widespread it becomes, how quickly,” says Barbara Span, a spokesperson for Star. “The fact is that Star Chek Direct is available now. Merchants can do it on equipment they already have.” Check imaging is expected to accelerate check settlement and slash check-handling costs for both banks and retailers, but otherwise will not change the path check data follow. Star's new service will access consumers' checking accounts via the same links it has established for its direct-debit network, which handles 3.5 billion point-of-sale transactions annually for debit cards secured with personal identification numbers. This will allow the service to offer real-time verification of account balances as well as immediate debiting of funds from accounts linked to Star through Star's bank members. “It truly electronifies (checks) for the first time,” says Span. The network so far has signed eight check-processing and ?verification companies as Star Chek Direct acquirers, including TeleCheck, as subsidiary of First Data Corp., Electronic Clearing House Inc., and BillMatrix Corp., a processor of Internet and telephone payments. Union Bank of California is the first of Star's 6,100 issuers to sign up for the service, which will begin operations in about four weeks. Star will not make projections for number accounts, merchants, or transactions it expects for the new service. Span says the network is still totaling the number of merchant locations served by the acquirers signed so far. Until last year, Star was the principal processor of the transactions generated by SafeCheck, a similar product that had been developed by Small Value Payments Co. Ltd. (SVPCo), a consortium of 11 financial institutions that offers check processing. At SafeCheck's peak last July, when SVPCo sold the assets of the 3-year-old service to Visa, Star was handling 150,000 transactions a month, or 80% of the total, with four participating acquirers. Span cautions, however, against using this number as a rough proxy for the volume Star Chek Direct may be expected to generate. “Coming out of the box with double the number of acquirers is an indicator that our experience this time may be different,” she says. When SVPCo sold the product, Star quickly turned to developing its own alternative. “It took us about eight months to switch on our own product,” says Span. Star Chek Direct offers immediate debit, overnight settlement, and guaranteed funds. It follows on a 4-year-old service called Star Chek, which performs real-time positive-file verification against 200 million accounts belonging to both Star and non-Star member institutions. Star Chek indicates whether an account is open and in good standing, but does not give real-time data on balances. Star will not disclose pricing for Star Chek Direct other than to say it will carry a fixed fee to acquirers that will include Star's switch fee, which is currently 3.25 cents per transaction. The service will also be priced below current interchange levels for PIN debit, which on most networks runs 20 cents to 25 cents per transaction at high transaction levels. The new product's fee will slide up and down with volume, Span says, but not by more than “a few cents either way.” Final pricing to merchants for check-imaging is still being worked out, in part because standards for image-handling have not yet been finished. Star Chek Direct relies on point-of-sale scanners that read bank-routing data encoded on checks, which cashiers will run through readers at the point of sale. Star research indicates one-third of check-writers at the point of sale are already accustomed to equipment that scans checks. Star is a subsidiary of Concord EFS Inc., which has been acquired by First Data in a deal closing this month.