Understanding Merchant Capture
By Jack Cashill
In the course of this October’s Banking and Finance Industry Outlook, First Community Bank president Greg Bynum asked his colleagues, “Do you have merchant capture?”
What intrigues the uninitiated is that Bynum asked this question as casually as if he were asking, “Do you have ATMs” or “Does your bank have a vault?” His colleagues responded equally as casually.
As happens with all the industries that Ingram’s surveys—IT and bio-tech most aggressively—the actors within adopt a given vocabulary long before the general public does. It is likely, for instance, that bankers were using the phrase “ATM” years before it became an accepted trope in everyday language.
“Trope,” by the way, is insider jargon from my English major days meaning “a word, phrase, expression, or image that is used in a figurative way, usually for rhetorical effect.” Academics can be the most insistent of all professionals in creating their own neologisms. The difference is that theirs, having little or no practical application, almost never leave the academy.
The phrase “merchant capture” is, however, relatively new. It generates fewer than 22,000 Google hits. (“Jack Cashill,” by contrast, generates ten times as many). Nor is there any clear trail to the phrase’s point of origin or date of creation. It does not appear to be trademarked.
This is not unusual. In researching a relatively new commercial phenomenon, one can typically find its benefits before finding any description of what exactly the phenomenon is or where it came from, merchant capture being no exception.
To demystify the phenomenon for the non-bankers who read this magazine, “merchant capture” means that merchants scan their customers’ checks at their business location and send a deposit file to the bank electronically over a secure Internet connection. That simple.
The first sale of this technology goes from vendor to banker. The vendor has to convince the banker that the merchant capture package will have sufficient appeal for clients and potential clients that it is worth the investment.
As with all new technologies, the banker has to consider what will be the consequences if he adopts the system and what will be the consequences if he does not. There is great benefit to being the first bank on the block with a hot new technology, but only if that technology finds a ready and willing customer base.
In the way of personal anecdote, I was recruited in the early 1990’s by a West Pointer who had just retired from the military. I was to help him with creating for individual customers a new phenomenon called a “web site” to be positioned on this thing called the “Internet.” He had learned the technology in the military. I went with him on one occasion to pitch a certain bank—name withheld for discretion sake—and we failed to convince the bankers present of the web site’s commercial value. We were obviously not very good salesman.
Merchant capture is not that hard a sale. Unlike the Internet, both bankers and merchants can visualize its function. The check scanning technology already exists. These scanners promise to increase efficiency “by capturing the MICR code” and the check image at the merchant’s back office. Again, for the record, “MICR” stands for Magnetic Ink Character Recognition. The acronym is used cas-ually by people who scan checks, but it is not likely known by the people who sign the paychecks of the scanners or those who cash them.
If all works well, the benefits of merchant capture are self-evident. Those merchants who use the technology never have to fill out a deposit slip or send a courier to an actual bank building again. This is particularly valuable for operations with multiple locations, whose courier costs are not at all trivial.
Merchant capture also simplifies the relationship between customer and bank and importantly dissolves traditional geographic dependency. The fact that a bank is miles away from a mom and pop cider mill is no longer as important as it once was.
At the same time, merchant capture provides customers with the advantages of local processing, specifically an accelerated availability of funds and an enhanced cash flow. Ideally, too, this feature can cut a merchant’s need for multiple accounts and consolidate that merchant’s payments with a single institution. This is, of course, presuming that all goes well.
As to the banks, as with all productivity improvements, there is simply less need for staff and potentially more loyalty from customers, electronic relationships being more difficult to dissolve than traditional ones. If the service functions well, after all, inertia would be enough to discourage the breaking off of the relationship.
Inertia is the key to understanding the adaptation of all new technologies. Here, change always favors the nimble and entrepreneurial, both among merchants and among bankers. Some banks see the value in maintaining their position as technologically sophisticated. This position can be particularly useful for community bankers as its customers do not presume the same.
Despite the obvious advantages to both banker and merchants, bankers ought not expect an easy sale. Not all merchants are nimble. Some pride themselves on their resistance to new technology.
One point of resistance is cost. Scanners cost money, an insignificant amount for a major retailer but significant for a small or local one. For those merchants used to receiving a variety of free services from the bank, start-up costs may look less attractive still.
Another point of resistance is complexity. There are few things that can go wrong when you put a bunch of checks in a bag and send them to a bank. Merchant capture presents a whole net of potential glitches, among them installation problems, faulty hardware, dysfunctional software, and more service agreements to fret about.
Critical, too, are the staff whose jobs will change and quite possibly be threatened. They are not likely to be to eager to embrace the new technology and may quietly sabotage it.
The bottom line for both bank and merchant is how well they manage change. For those that have a good track record with adopting and deploying new technology successfully, merchant capture seems a natural. As the bankers discuss in this month’s industry outlook, all technological adaptations have the potential to change not only how banks do business, but with whom they do business.
And today smaller banks have no choice but to be nimble.
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