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Back Office Conversion
The Benefits of Back Office Conversion
Samuel Robb, Mellon Financial Corporation - 19 Feb 2007
Originally published on www.gtnews.com <http://www.gtnews.com>.
To best understand BOC, one must examine the history of check conversion. Check conversion is simply an umbrella term used to describe several different methods of processing paper payments as electronic transactions.
The benefits associated with check conversion has added efficiency to the nation's payment system, generated savings for businesses, and led to strengthened privacy, fewer errors, and greater protection for consumers. Via ARC, the checks that consumers mail to their billers are converted to ACH debits at the point where MICR information is first captured.
A second type of check conversion is point-of-purchase (POP), where the check presented by a consumer payer at a retail checkout location is scanned for conversion, marked void, and returned to the payer. Over the past several years, numerous challenges have caused POP to fall short of expectations.
In contrast to POP, Back Office Conversion streamlines the process, requiring the originator to display authorization language at the checkout and to provide a copy of the notice to the consumer in the form of a take-away. The merchant typically retains the check and forwards it to a centralized 'back-office' environment where the item is converted to an ACH debit. Back Office Conversion, when used in conjunction with remote check capture for the clearing of all ineligible items, offers companies a single-threaded 100% electronic deposit workflow that enables comprehensive electronic deposit and clearing
Back Office Conversion also allows a consumer to express the desire to have their payment excluded or opted-out from the check conversion process by communicating this directly to the merchant at the time of the transaction. If the merchant chooses to accept the check anyway, that single check must be excluded from the ACH conversion process, but can be deposited as an image, which can then be cleared as an image or substitute check, or simply as the paper check.
With the proliferation of imaging technology and image exchange, why would a merchant implement a Back Office Conversion solution? One of the key considerations is the overall financial business case for Back Office Conversion.
Key components of the business case may include:
- Cost of software and imaging technology.
- Float impacts.
- Potential point-of-sale system changes to support the take-away notice requirement.
- Secure storage and destruction of checks.
- Potential loss reduction resulting from faster notification of returns
The anticipated emergence of Back Office Conversion has raised doubts about the future of POP check conversion. POP users feel that the benefits of completing the deposit at the time of the transaction and returning the check to the consumer outweigh the concerns over tender timeliness and training. Some merchants use cashiering system screen prompts to ensure cashiers are taking the required steps and are able to apply the correct processing procedures to checks that are eligible and ineligible for check conversion. Those same merchants feel that their back-office is not capable of adhering to Back Office Conversion requirements because of the various other store processes that occur in that space. To that end, both Back Office Conversion and POP are likely to co-exist for some time to come.
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