BOC’s First Anniversary

Has BOC Lived Up to the Hype?

Despite all the hype over a year ago, back office conversion (BOC) didn’t find the momentum expected during its inaugural year. It may still be too early to predict the longer term market, but it’s clear there are many significant barriers to BOC adoption that may explain the lack of early acceptance by retailers.

The potential savings with BOC are present for many retailers; however most savings accrue to the finance organization. Considering the solution has to be accepted by Store Operations and Information Technology (IT), the financial benefits may not be enough to close the deal. Even when isolating benefits to the finance department, the resulting business case may seem positive, but may not be large enough to qualify for funding.

Unlike remote deposit capture (RDC) where the industry is experiencing exponential growth, BOC doesn’t deliver transportation or labor savings to the same extent as RDC due to the prevalent use of cash at the store level. This reduces, if not eliminates, one of the most significant cost saving components typically associated with RDC. Additionally, stores operate on very thin margins (the industry average is 3.14 percent profit margin), resulting in strong scrutiny applied to any investment decision.

Lastly, we can’t ignore the alternatives to BOC. Many retailers have MICR-read technology in place at the point of sale (POS) for check verification and guarantee services. Even if one ignores the disadvantages of POP (capital investment, training, checkout line impact), it is potentially appealing to retailers since they could utilize their existing equipment for this check truncation application.

As usage of checks continues to decline, the business case erodes for store level truncation and/or conversion of checks; however we shouldn’t count BOC out just yet. We must realize that, compared to RDC, the market adoption curve for back office conversion will be lower, slower, and have a stronger emphasis on cost justification at the operations/store level.

The industry can assist with market awareness and adoption by educating the market and understanding the most appropriate market segments for BOC success. According to a survey of retailers conducted by Panini last year, over half of the respondents had never heard of BOC. However, when retailers aware of BOC were asked where they’d expect to purchase BOC solutions, the majority view the likely channel to include banks, ISOs, merchant acquirers, and check verification/guarantee service providers.

This channel has the opportunity to capture a healthy share of the 3.2 billion items NACHA predicts to clear via BOC by 2011 by simply educating the right merchants on the benefits and cost savings of back office conversion.

Within the massive $4.4 trillion U.S. retail market, there are niche segments that are strong candidates for a healthy ROI on BOC investments. These include grocery and convenience stores. Grocery stores receive nearly 18 percent of their payments by check, and the market continues to grow. Close to 11 percent of all payments at convenience stores (c-stores) are made by check, and nearly 80 percent of the 144,000 c-stores in the U.S. accept checks. Clearly, the prevalence of the check and its efficiency as a payments instrument would be very important to these retail segments.

Remember, remote deposit capture benefits from user demand and pull, coming directly from commercial users. BOC has no one standing at the point of sale demanding truncation or conversion of their check! The industry and channel must take the initiative to educate and create awareness of BOC if they expect it to live up to its hype.

Michael Pratt is Chief Marketing Officer at Panini North America. He can be reached at 937-291-2195 or michael.pratt@panini.com.

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BOC’s First Anniversary