CrossCheck Blog

Recently, I wrote a blog article about attending the big Money 20/20 show in Las Vegas. Of course, there are other big shows for people in the payments industry. The Association for Financial Professionals (AFP) has an annual show as well as a professional designation (Certified Cash Manager). The National Automated Clearinghouse Association (NACHA) has one and their professional designation is Accredited ACH Professional. The Electronic Transaction Association (ETA) has a show that attracts about 4,000 people, and their professional designation is Certified Payments Professional. The American Bankers Association (ABA) and the Bank Administration Institute have their own conferences while bank core processors such as Jack Henry have annual user conferences too.

We get calls from our ISOs and MSPs — the people who mainly sell credit card processing services — asking: “What is FinTech, and why am I hearing so much about it?” Salespeople working for ISOs (independent sales organizations) are focused on the here and now, how many merchants they can close this month, and how much gross margin they can produce for their company in each quarter. They are, as entrepreneur/coach Michael Gerber says, “Doin’ it … Doin’ it … Doin’ it.” For the moment, FinTech (financial technology) is outside their scope, but the future is worth considering because it will ultimately impact them sooner rather than later.

Today I read an article by Alessandra Malito called, “Why it still takes so long for checks to clear — and what you can do about it” with the subtitle, “Sometimes a good old-fashioned paper check can feel like it takes an eternity to clear.” In her opening arguments in the case against paper checks, Malito says, “For all their seeming simplicity, checks can get complicated — there are numerous ways they can be processed, and even if a check clears quickly through electronic processing that doesn’t necessarily mean the funds are immediately available.” Later in the indictment, Malito dismisses banks as being “usually known for their archaic technology.” Seriously, it would be hard to find a more cliché-ridden, off-base and inaccurate picture of how checks are processed.

The September 11, 2001 attack on the World Trade Center in New York’s financial district changed the nation in many ways. The emotional scars still linger, the rebuilding of physical structures continues today, and Congress reformed the way the banking industry handles check processing. During the second half of the 20th Century, paper checks were flown between US depository financial institutions on a nightly basis. That approach reached crisis on 9/11. For security reasons, all non-military aircraft were grounded for two days following the hijackings and check processing was temporarily halted in conjunction with air travel. In 2003, Congress passed the Check Clearing for the 21st Century Act (Check 21) to abate future disruptions, opening the door for banks and other institutions to process checks electronically. The law enables recipients of paper checks to create scanned digital versions, eliminating the need to handle paper checks. When Check 21 took effect October 2004, a function known as remote deposit capture (RDC) was introduced to facilitate the acceptance of those scanned images as deposits.

CrossCheck is a 33-year-old payment processing company with tens of thousands of merchants using our services every day. This year, we will clear billions of dollars in check payments, yet we are not a well-known brand outside of our core business clients. When people ask me about our business model, I tell them that it is all about demographics. This is not what they are expecting to hear, but it usually piques their interest enough to keep listening. By demographics, I mean the distribution of wealth in American society. This is an important topic, but one not typically understood by most Americans, so let me try to explain.

People used to say that a banker’s life was as easy as 1-2-3: take the money at 1%, loan it out at 2%, and be on the golf course at 3 pm! This isn’t as far-fetched as it seems since banks are paying about one percent for deposits, and (as I write this) the Euro LIBOR market is negative and USD LIBOR is 1.40%. You might think bankers have a pretty uncomplicated and structured life since everything is regulated for them, and if they follow the rules, they will get a 1% return on assets just for showing up. This might have been true once, but today a banker’s life is impacted by the Three Ds of banking: disruption, dis-intermediation and disappointment (in the efficiency ratio and the earnings calculus). This month, I attended the Global Payments Symposium in Manhattan by the American Bankers Association and its subsidiary BAFT, and the resounding message was all about disruptive payments. Here are my favorite takeaways from the event.

You probably know that the global research company J.D. Power & Associates does an annual ranking of automotive brands. Now in its thirtieth year, “the 2016 U.S. Initial Quality Study is based on responses from more than 80,000 purchasers and lessees of new 2016 model-year vehicles surveyed after 90 days of ownership. The study was fielded from February through May 2016.”

Recently, The Home Depot Inc. filed an antitrust lawsuit against Visa and MasterCard. It contends that the card brands colluded to prevent adoption of new chip-based cards requiring consumers to authorize transactions by entering personal identification numbers (PIN). In adopting EMV chip cards, Visa pushed for a signature authorization while MasterCard and the other brands advocated PIN authorizations. The Visa approach to processing card payments prevailed.

We field a lot of calls these days from merchants asking about the new EMV chip cards. Merchants are not happy with the cards and some even suggest that EMV means “every merchant vexed.” Walmart has taken legal action against Visa over the EMV rollout and the beat goes on. Walmart alleges that Visa’s refusal to mandate PIN codes with EMV, and continuing to allow the use of mag-stripe readers requiring a signature, causes irreparable harm to the world’s largest retailer. The transition to EMV chip card terminals has taken merchants and consumers by surprise with both groups hoping the system will work out the kinks sooner than later.

First impressions are very important. Sociologists say when we meet someone, we form an impression about them in the first eight seconds, and once that happens, it is difficult to change. It turns out that we are creatures of habit, and you could say habits rule our lives. This is probably a good thing because the habits we develop early in life give us a construct to evaluate fact from fantasy and truth from fiction. Hopefully they allow us to make rational decisions based on evidence, not emotions.