There are three main providers in the check guarantee business. All have been in business for many years, have seasoned and mature products, and a large book of business that covers the entire country. Naturally, merchants want to know how the top check guarantee companies differ from each other.
Obviously, I cannot speak for the other two providers, but I can offer general information about the industry. While we all provide similar services, the business model for each company is different (see below for "Company Differences" and "The CrossCheck Approach").
The fundamental differences are how the product is sold, who the target market is, how the pricing is determined, the types of hardware supported, how authorizations are handled, how claims are paid, and how responsive customer service is to the merchant.
The Early Days of Check Guarantee
When CrossCheck started in 1983, credit card processing was sold by independent sales organizations (ISOs) that typically sold for a processor, who was sponsored by an acquiring bank. Most of the processors were non-banks at that time, and the list of acquiring banks was pretty small.
ISOs were the “feet on the street” that called on merchants in person. They not only provided a merchant account, but also sold or leased and installed the credit card terminals, all of which worked on a telephone line at that time.
When Verifone unveiled an affordable swipe reader, a new opportunity was created for ISOs to blanket the country and install millions of readers. Merchants wanted to finally stop using the “knuckle-buster,” get the lower swipe rate, and not have to send a bunch of carbon copies to their bank every day.
Back then, almost every merchant took checks, and they asked the ISOs if they could provide check services. Our two competitors at the time sold credit card processing themselves, and the ISOs did not feel obliged to help their direct competitors in the merchant card business. Instead, the ISOs recommended CrossCheck which is how we became one of the top check guarantee companies.
Similarities Among the Top Check Guarantee Companies
Fundamentally, the top check guarantee companies are all doing the same thing, so naturally there are a lot of common practices. I would guess that the up-front due diligence is pretty similar in each case. It would be great if we could spot potential bad checks up front and not have to go collect them later, but nobody has discovered a magic bullet to do that.
All of us use third-party databases to see if the consumer’s bank account is open because it is impossible to collect on a closed account. We can also access account history to see if there is a history of overdrafts. There are two main providers of this service: Early Warning and Microbilt.
Since these services cost money, the provider has to balance how much they want to spend against how much they will make from selling the service. These services are very comprehensive and certainly important to the provider. Remember that the provider is not making a traditional credit judgment on the consumer because they are not advancing funds or credit.
They are simply trying to estimate whether the check will go bad or not. It is an educated guess and as much art as it is science. Sometimes there will be false declines and sometimes a bad check writer will get through. The trick is to balance these situations so that the merchant does not lose a sale and the guarantee company does not lose money.
Behind the Curtain of Check Guarantee
People always ask us, “How do you know if the check will be good?” The answer is, frankly, we don’t know, but we think we can screen out obvious factors such as whether the account is still open, or if the consumer has a history of bouncing checks.
After using Microbilt and Early Warning, the top check guarantee companies will use their own internal algorithms and proprietary databases to make an educated guess about whether the check will clear.
The algorithms will identify merchants who are at higher risks of taking bad checks (e.g. a check cashing store) as opposed to new car dealers or building supply companies. It will also take in factors such loss experience by region and more.
The CrossCheck proprietary database, for example, contains information on millions of check writers, including closed accounts, check-writing histories, and individuals who have offered invalid checks in the past.
Finally, a company like CrossCheck has confidence in its ability collect on bad checks because it is a licensed, registered, and bonded collection agency in all 50 states.
Do Check Guarantee Services Protect Against Fraud?
It should also be noted that in most instances, the top check guarantee companies will not guarantee against fraud (unless there is a special program for that, the merchant signs up for it, and agrees to pay an extra premium). Given the widespread nature of check fraud, this is an issue, which is why, for example, we only guarantee checks at businesses where there is a low likelihood of fraud.
At a new car dealer, for instance, the consumer is carefully investigated, particularly if they are getting a loan at the dealership. We have heard anecdotal evidence that as many as one in 250 sales at a new car dealership involve some kind of fraud such as synthetic identity. Interestingly, people do not typically target a funeral home or a veterinary office to commit fraud.
Each of the top check guarantee companies has a different focus. For example, merchants tell us that one company locks them into long-term agreements, but seems to have a lot of declines.
CrossCheck developed a program called Plus Sales that takes those declined checks and approves them. In other words, we have converted lost sales into completed sales for those merchants. The rates for Plus Sales are a bit higher because our risks are higher. Over time, though, we have shown that Plus Sales is beneficial to merchants opting into it.
Is There Room for More Check Guarantee Companies?
It would be pretty difficult, if not impossible, to start a guarantee company today. First of all, they would have to be licensed as a collection agency in all 50 states. This takes a few years and costs millions of dollars.
Second, they would have to learn how to succeed in the collection business, which is a pretty tricky business and highly regulated, I might add.
Then, they would have to put together a sales force to sell the guarantee product — another tricky task that could take a long time to get right. How many CEOs would want to make a bet with their own capital that they can guess when a check will go bad and how often they can collect on it?
The CrossCheck Approach
The top check guarantee companies have been around for decades. Each one has a successful business model and is staffed by seasoned professionals. In choosing one versus the others, merchants will have to evaluate which one fits best with their business model.
The CrossCheck niche is approving more checks — particularly for high-dollar transactions — via three convenient channels: phone, web or our free desktop application called Focus. This means fewer lost sales for the merchant.
Merchant customers include auto dealerships, home furnishing stores, building supply centers, heavy equipment dealers, specialty retailers such as music stores, some contractors (e.g. HVAC or remodeling); and medical, dental and veterinary offices.
Other CrossCheck benefits include:
- A wider acceptance of checks and fewer administrative returns.
- Green-friendly paperless recordkeeping and processing.
- Loaner equipment available at no additional charge.
- 24/7 processing, transaction reporting and review.
- Free 24/7 customer service and tech support.
- Consolidated reporting and banking.
Finding reasons to approve checks versus decline them is what CrossCheck does best.
Download our free guide to learn how Check Guarantee can help your business increase sales and mitigate risk while saving time and money.
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