story by Kim Souza
ksouza@thecitywire.com
The paper check was once the most used form of currency by consumers at retail counters, but the times are changing rapidly. Whole Foods recently announced as of Sept. 1 it would no longer accept personal checks in Arkansas, Oklahoma, Texas and Louisiana, following a trend in other markets over the past few years.
“Most of our regions no longer accept personal checks, but the Southwest is not the last one to make the transition,” said Lindsay Robison, a Whole Foods spokeswoman based in Austin. “By accepting only electronic payments and cash, we will reduce wait times in line.”
Aldi, a discount grocer growing its footprint across the Midwest, has had a no-check policy in place for years. Customers there must pay in cash or with a debit card in keeping with the retailer’s no-frills, pass-the-savings-on strategy.
Local grocers like Harps Foods continues to accept checks, but they are making up a smaller part of overall transactions as consumers are more apt to use a debit card which is processed immediately versus a two-day lag in check processing. Kim Eskew, chief operating officer with Harps Foods, said they are in the process of updating all of the terminals in their 76 grocery stores. He said it's a substantial investment but it will give them the flexibility of accepting chip-based cards; and with some software modifications they could sign on for mobile payment plans in the future.
The number of checks written declined nearly 10% every year from 2009 to 2012, according to the 2013 Federal Reserve Payments Study released in July. Two-thirds of the noncash payments made in the U.S. were made by card in 2012, according to the study.
The 50% decline in checks written since 2000 has greatly reduced the need for processing centers which are run by the Federal Reserve Bank. At one time there were 40 check-processing centers. That has been reduced to one which is located in Atlanta, according to the Federal Reserve Bank website.
CHECKS WELCOME
The nation’s two largest grocers, Wal-Mart and Kroger, still accept checks with no immediate plans to stop.
Only about 5% of all transactions at Kroger are by check, according to spokesman Gary Huddleston. He said the company continues to accept checks because it also does a significant amount of check cashing, which is a fee service.
Wal-Mart also does a lion’s share of check cashing at its stores as well as supplying small businesses and non-profits with office supplies and other products, many of which still pay with a corporate check. The retail giant has also said it is about offering variety and assortment to its expansive customer base of 140 million shoppers a week. As long as some of its customers need the check option it plans to offer it.
Wal-Mart and a growing number of retailers and service providers are using electronic check conversion, which isn’t really payment with a check like the traditional method. The Federal Reserve explains that shoppers may think they are paying with a check but the check is used as a source of information — account number, check number and ABA Routing number that identifies the bank. The information is then used to make a one-time electronic payment from the consumer’s bank account — an electronic fund transfer. The check itself is not the method of payment.
That explains why Wal-Mart cashiers hand the processed check back to the shopper once the transaction is complete.
MOBILE PAY
Apple announced plans to launch Apple Pay later this month on its iPhone 6 and iPhone 6 Plus devices. Acceptance among retailers has been mixed.
"A lot of it hinges on not so much Apple but the merchants that are out there and whether or not that consumer is going to have a good experience the first time they try to use Apple Pay," said eMarketer analyst Bryan Yeager. "That's been one of the key issues that every mobile payments provider has struggled with."
Apple has partnerships with MasterCard, Visa and American Express, along with leading banks that handle more than 83% of U.S. credit card transactions. The merchant list includes Macy's, Bloomingdale's, Disney, Walgreens, Staples, McDonald's, ToysRUs and Whole Foods for a total of more than 220,000 retail locations in the U.S.
Wal-Mart, Dillards, Best Buy and other major retailers have not signed on for Apple Pay because they have a competing mobile payment product in the works through a private pilot partnership in Merchant Customer Exchange.
Merchant Customer Exchange was formed to develop a customer-centric and secure mobile payment solution that it calls CurrentC. Unlike Apple Pay, CurrentC is not linked to credit and debit cards, but rather directly to shoppers' bank accounts. The app generates a QR code recognized by most existing checkout scanners that will deduct the purchase amount from a shopper's checking or savings account through the app without a transaction fee.
CurrentC was launched in private pilot mode in select locations across the country. The private pilot will expand through 2014, with regional and national rollouts to follow in 2015, according to Merchant Customer Exchange.
“CurrentC will offer customers a simpler, faster, secure way to checkout at their favorite merchants,” said CEO Dekkers Davidson. “At full scale, CurrentC will be accepted in more than 110,000 merchant locations across the country, giving consumers unmatched access to their favorite retailers. It will also offer innovative features and benefits, such as merchant loyalty programs and instant coupon savings, all stored on the phone and available right at the point-of- sale.”
CurrentC will enable customers to store and redeem digital coupons and offers and it works on any smartphone, not just the iPhone, and thus has a larger market for the time being, the release notes.
By 2018, mobile proximity payments in the U.S., which include payments made using a phone to make a physical transaction at the point of sale, will reach $118 billion, up from $3.5 billion in 2014, according to eMarketer. Analysts now don’t believe that any one system will rule the day.
RACE TO MARKET
Researcher Craig Hettenbach issued a blue paper to investors on Tuesday (Oct. 7) to analyze the effect Apple Pay may have on the mobile payments industry when it launches on the iPhone 6 and iPhone 6 Plus this month. Because Apple Pay is compatible with the existing infrastructure and Apple already has such a large install base of users, Hettenbach believes the company will have no trouble gaining traction.
He says a key factor for Apple's likely success is compatibility with the existing payment infrastructure. Apple Pay will allow users to make payments with bank cards offering a layer of protection by swapping out the card number for a different, representative number or a token number from card networks to protect user data.
Davidson said the CurrentC is a software-based solution that works with most existing point-of-sale and payment terminals — providing merchants large and small with a cost-effective entry point into the mobile payments movement. CurrentC will utilize a secure paycode and will not require additional hardware from most customers or merchants.
He the CurrentC provides a more secure payment experience than traditional methods by storing users’ sensitive financial information in its cloud vault rather than locally on the mobile device. This system also uses a token placeholder to facilitate transactions instead of constantly passing the data between the user, merchant and financial institution.
While mobile payment is sprouting wings analysts don’t believe consumers are quite ready to shelf their wallets like they have their checkbooks in recent years.