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Electronic Checks: A New Way to Pay

Merchants converted 88.7 million checks that consumers wrote at the point of sale to electronic transactions, according to industry analysts.

So, what are electronic checks and how do they affect you? Here's how they work:

1. You write out and give a share draft or check to a cashier at the point of sale.
2. The cashier scans the check through a magnetic ink character recognition (MICR--pronounced miker) reader that captures the account number, check serial number, and financial institution routing number.
3. The data move electronically to a check authorization service, which verifies that it's not drawn on a closed account or that you have not written bad checks.
4. The cashier voids the check once approval comes electronically, and then hands the check back to you.
5. You and merchants participate in electronic checking voluntarily. You sign an authorization (usually a receipt) permitting electronic conversion of payment. The merchant signs up and pays for the service through either its financial institution or a processing company.
6. The transaction goes to the ACH network where it's credited to the retailer's account electronically and forwarded to the financial institution for debiting. The check will take about two or three days to clear, the same amount of time a paper check usually takes to be approved for payment.

Electronic checks also provide privacy protection. When you hand over a paper check to a clerk, 10 or more hands touch that check during processing before it returns to your credit union or to you. With electronic checking, the check doesn't travel beyond the point of sale; you take it with you after it's been approved electronically.