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October 1, 2009
By Greg Gazin
EDMONTON, Oct. 1, 2007/ Troy Media/ – If Ian McNeill has his way, corporate cheques will not only top the endangered species list – they will become extinct.
The cheque has been around for centuries, although its actual origins seem somewhat sketchy. It’s been said the first cheques were used by the Romans as early as 300BC, but went virtually unnoticed until the 1500s. The first record of a printed cheque dates back to the Mid 1700s in England and is still an accepted as a negotiable instrument.
Electronic cards are, of course, a more recent phenomenon. The Interac Association – founded in the 1980’s by the big five banks – began the use of the Automated Teller Machines (ATM) and is responsible for the creation of the Interac Direct Payment (IDP) or debit system we use today.
Canadians have taken to ATMs in a big way: we are leading ATM users in the world. In fact, 86 per cent of Canadians have a banking card and 85 per cent of those cardholders have used IDP to make a purchase.
What will replace the cheque, according to McNeill? The electronic Stored Value Card (SVC), which is much like a prepaid card, but with a lot more functionality, control and accountability.
McNeill is President and CEO of the Pay Linx Corporation a company, a company which processes, manages and issues stored value cards and Mobile Banking solutions throughout Canada and United States.
SVCs, he said, can be issued by any type of organization, such as governments, financial institutions and other commercial entities, to convert the paper cheques, vouchers and even cash transactions to real-time secure electronic payments.
“Government,” he said, “has been trying to move away from paper to electronic payments for years, because it costs them about $80.00 to issue a (paper) cheque”
Alberta’s Ministry of Employment, Immigration and Industry, McNeill added, has been waiting for this solution to walk through their doors for a decade because SVCs offer a level of control not available with a cheque. “SVCs,” he said, “can be configured to allow for authorization or restriction at either a Point of Sale terminal, such as at a store, or at an ATM machine. They can be configured to allow purchases from only specific locations, locations based on Standard Industrialized Codes (SIC), similar to those headings found in the Yellow Pages.
The Alberta government awarded Pay Linx a pilot project to ascertain the feasibility of SVCs in August of 2005. It went live in March of 2006. On July 4 of this year, RBC was selected as the preferred vendor to roll out SVCs across all Alberta government departments. Pay Linx will be providing the service.
With SVCs, Health Insurance can, for example, allocate that funds only be accessed to pay for specific purposes. “If the card” McNeill said, “was configured to pay only for prescriptions, it won’t work at Home Depot, but it will work at Shoppers Drug Mart.”
It can also, he said, be used to set limits for services like treatments at a specialist or chiropractor.
“The system itself is very sophisticated, but the SVC is not a smart card (chip based) – all the processing is done on the back end, using existing financial networks such as Interac, VISA or MasterCard.”
The Pay Linx system, he added, complies with all the industry security regulations, including privacy and anti-money laundering. “It even,” he added, “monitors for unusual activity.”
“The beauty is that merchants do not need to add any additional equipment to accept an SVC – it runs on the same network as Interac and Visa.”
An added bonus to using SVCs, he said, is the inefficiency inherent in using cheques. “For the most part, creating and cashing a cheque is purely manual, incorporating many steps. Once you produced it, it has to be delivered to the beneficiary, who then deposits it. It is then processed through the banking system, reconciled, and eventually it is converted to an electronic image for storage.”
“Cheques, he added, “are also a security risk. They contain names, addresses, phone numbers, bank account numbers and signature – an easy recipe for fraud and identity theft.” Furthermore, cheques can also be stolen, altered and even get lost in the mail.
A Stored Value Card, on the other hand, can be easily cancelled and quickly reissued with its value remaining fully intact. It’s even better than cash, McNeill said.
For the beneficiary, cashing a cheque can often be difficult, especially for the underbanked, that is, individuals who may have a limited relationship with a financial institutions. If they don’t have credit established, which can happen with social assistance recipients, it’s possible that cashing the cheque or depositing it in a bank machine could result in funds being held for days. As a result, many of the underbanked use cheque-cashing services which often charge a hefty fee. “SVCs, McNeill said, ” circumvent the cheque cashing challenges.”
SVCs also allow the cardholder to check their balances on-line, and to get a touch-tone phone access to listings of all of their transactions.
According to Pay Linx research, there is a definite market shift from paper to plastic. The company’s research has found that cheque-use is declining 10% each year. “By 2010, McNeill said, “it’s expected that cash and cheques will account for only 10% of all transactions”
This will make the SVC the only practical alternative.
Do you have an SVC in your wallet?
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