Many retailers looking to speed up the electronic payments process would rather "switch" directly to approval networks than fight response rates that come through the twists and turns of third-party processors.
By installing network switches -- technology that affords the corporate data center direct access to financial approval networks -- retailers not only gain speed in processing credit, debit and check transactions, they also gain flexibility and control of the entire electronic payments process. Further, chains told SN they can leverage the investment by loading up the data line with numerous other store applications.
Kroger Co., Cincinnati; Price Chopper Supermarkets, Schenectady, N.Y.; Abco Foods, Phoenix, and H-E-B Grocery Co., San Antonio, are among those chains relying on their own payment switches for efficient processing of electronic payments. To maximize the return on investment, these retailers also use the switch to drive a host of other store applications -- from time-and-attendance and price changes to direct store delivery and pharmacy adjudication.
Speedy processing of electronic payments, though, emerges as a top reason to install the versatile switches, retailers told SN. They also are exploring other systems to enhance electronic payments, such as magnetic ink character recognition devices for check authorization.
"We're shooting for four to seven seconds' response time" to obtain approval for credit, debit and check processing, said Bob Killough, store systems manager at H-E-B, which has its own financial switch. "If I hear seven seconds or less, I don't get concerned."
H-E-B is new to the electronic payments game, having begun accepting credit cards at the front end only a few weeks ago. The chain is now rolling out payment terminals at a rate of 12 stores a week, with all 165 stores expected to be on line by October.
At Abco Foods, which developed and markets its own payment switch, speedy transactions and better control of electronic payments processing were the goal.
"Today our average response time is under five seconds," said Jerry Johnson, vice president and chief information officer for management information systems. "We authorize debit cards in under seven seconds; we authorize credit transactions in under four seconds and checks in under a second.
"You cannot let a customer stand in a lane for 20 seconds wondering if she's going to get approved or not," said Johnson, who noted that credit and debit transactions comprise about 20% of total store sales.
At Abco, the payment switch also has paid off by reducing losses due to bad checks, and in slashing the cost of reconciling disputed credit transactions.
"The switch has been such a money-saver for us in regards to bad checks and holding our costs down on debit and credit" processing, he told SN. "For example, we put $756,000 down to the bottom line the first year with our check-cashing system alone." The switch allows the chain to access national check authorization networks, rather than just rely on a store-based negative check file.
The switching capability also enables Abco to settle disputed transactions directly with some credit card issuers. "It gives us a positive cash flow, because now instead of paying 10 or 20 cents to settle a transaction, we pay under 4 cents" per transaction by working directly with the card issuers, Johnson said.
Retailers are exploring an array of other technologies, not only to speed the checklane and expand customer payment options, but also to reduce losses due to fraud.
For example, several retailers cited devices equipped with magnetic ink character recognition capability -- or MICR readers -- as an effective means to curtail check fraud and move the checklane faster through "no ID tendering."
Stores equipped with MICR readers enable cashiers to accept personal checks without requesting any form of identification. Shoppers provide their driver's license number, checking account number and other vital information to establish a presence on the store's data base. On the shopper's subsequent visits, the MICR readers cross-reference the code printed on the face of the check against the data base to verify approval without the need to show identification.
Fewer shoppers fumbling to retrieve their driver's license translates into faster throughput in the checklane, retailers said.
MICR readers also can alert a cashier that a check is drawn on a closed account -- or that it was fraudulently printed. "Anyone with a laser printer can create a fraudulent check," said H-E-B's Killough. "I just saw an ad for toner cartridges that have a MICR charge to them, which makes it easier to create a fraudulent check."
H-E-B is installing MICR readers as part of its electronic payments program, and Killough said eliminating manual entry of numbers, along with the no-ID tendering feature, "should increase our throughput significantly."
Another chain with plans to roll out MICR check readers expects the units to speed up electronic payment approvals and beat back losses due to check fraud. With MICR readers, "we'll be able to process the information against the data base of closed accounts. Today we do not know whether a customer has written a check against a closed account," said the MIS executive, who requested anonymity.
"MICR readers also will allow us to accept checks from customers who are established with us, without having to ask for their ID," said the executive, who noted the units will be installed in 300-plus stores next year.
Megafoods Stores, Mesa, Ariz., is another chain using MICR readers, along with other advanced electronic payment processing systems like centralized check verification.
"We have six- to seven-second response time on verification for checks, credit and debit, and I think that's not bad at all for the industry," said Bob Stratton, director of MIS.
Not all retailers agree that installing MICR readers and not requiring check writers to provide identification is a wise move.
Al Seba, payment systems manager at Randalls Food Markets, Houston, said MICR readers can offer some benefits, but retailers should be wary of relaxing verification procedures: "You don't know who the individual presenting the check is . . . that check could have been stolen 20 minutes ago.
"Most of the people I've spoken to about MICR check readers think if you are taking [checks] without any type of identification, you are going to pay dearly for that" in the form of losses due to fraud, and the time and money spent contesting chargebacks, he said.
At Randall's, cashiers accept debit and credit cards and execute the transaction for shoppers, who need only enter a personal identification number and sign credit slips, he said.
By having the cashier do all the work and making sure the card gets into her hand, she can verify the signature," he said.
Gil Russell, chief information officer at Fiesta Mart, Houston, agreed that bypassing the verification step that MICR readers allow may be a convenience for the customer, but not necessarily a prudent move for retailers.
"If you want to file charges for bad checks -- take somebody to court to get your money -- you have to have looked at a picture ID" in certain cities and states. "So now that kind of complicates things," he said.
Retailers looking to enhance payments processing said the wide array of technological options available today can be daunting sometimes. Added complexity comes with new demands being placed on the front end, such as electronic benefits transfer programs now being tested and rolled out in some markets.
Said Fiesta Mart's Russell: "If there's a goal for an information systems guy, it's 'Keep it simple.' Let's get the latest technology and let's make it easy for our checkers and comfortable for our customers."