ECHO news today
ECHO Announces Agreement in Principal to
Acquire Magic Software Development Inc.
Business Wire - March 08, 1999 08:34
AGOURA HILLS, Calif.--(BUSINESS WIRE)--March 8, 1999--Electronic
Clearing House Inc. (Nasdaq:ECHO) Monday announced it has signed a letter
of intent to acquire Magic Software Development Inc. (Magic).
Magic provides electronic check conversion, electronic check re-presentment,
payday loan, check verification, and check guarantee solutions to financial
services companies and retailers. The transaction consideration will include a
fixed number of shares of ECHO's common stock and a performance-based
earn-out component.
"Merchants are asking for a complete solution that includes electronic check
conversion and re-presentment along with credit card processing," stated Joel
M. Barry, chairman and chief executive officer of ECHO. "Magic brings the
check processing power and industry knowledge that complements ECHO's
offerings."
Based in Albuquerque, N.M., Magic has 11 employees and processes more
than 75 million check verification transactions per year, totaling more than $2
billion. Since 1992, Magic has been an industry leader in check verification and
guarantee processing. The company has a depth of experience, processing for
large accounts such as National Check Network (NCN).
NCN is a coalition of 68 independently owned check collection agencies, which
have formed one of the largest national databases by sharing negative check
information.
In addition to current offerings, Magic is a pioneer in the development of
electronic check conversion and re-presentment services. Several merchants are
benefiting from these services and full market rollout will commence in 1999. In
addition, Magic is actively shaping the development of future services through its
membership in the Electronic Check Council (ECC).
The ECC develops new rules and regulations for the National Automated
Clearing House Association (NACHA). The ECC has developed a program for
check conversion and re-presentment, and is currently developing a pilot
program for account receivable check truncation. Magic is well positioned to
take advantage of these exciting new financial products.
"Electronic processing is lowering the cost of doing business for merchants," said
Kris D. Winckler, president of Magic Software Development. "Merchants are
driven to add electronic processing to become more cost efficient."
New financial products, such as those described above, are the future of
electronic commerce and few companies are prepared for the emerging
landscape. By providing a complete check conversion system that includes a
front-end authorization and capture and back-end processing and settlement,
Magic is strategically positioned to capitalize on these new markets.
Market Environment for Electronic Checks
Today's financial environment is favorable for the benefits electronic check
services can provide. Checks are a popular and still-viable payment method and
are forecasted to remain so into the foreseeable future. Check volume is
increasing by 1.5 billion per year and estimated to increase until 2025.
Industry statistics show 200 million Americans have checking accounts and 84
percent use checks as their primary method of payment. More than 65 billion
checks are written annually and of these approximately 18 billion are written at
the retail point-of-sale.
Though the use of checks is beneficial for customers, the costs associated with
fraud, deposit preparation, transportation, clearing, return item handling and
collection are significant to retailers.
Check fraud in 1996 resulted in more than $12 billion in losses with
supermarkets alone losing more than $111 million. In the past two years, 54
percent of retailers report an increase in returned checks; 46 percent say they
have had an increase in bad check write-offs.
The benefits of electronic check processing on fraud reduction and costs are
significant. Without electronic check processing, merchants must rely on a slow,
paper-based check clearing system to receive final payment or to be notified of
a return.
An electronic check can be automatically re-presented two additional times
without manual intervention and mail delays. This reduces the collection
timeframe by 10 or more days, improves cash management, and reduces risk.
Merchants prefer this collection method since a collection agency will not be
initially calling their customers.
Electronic Check Conversion Process
Electronic check conversion is the process whereby a check is converted at the
point-of-sale into a debit transaction that is electronically processed through the
Automated Clearing House (ACH) network.
The customer presents a blank paper check at the point-of-sale, which is used
to initiate an electronic transaction. The check is scanned through a check
reader where the customer's account information is captured. The amount of the
check is then hand-entered on a terminal keypad.
The checking account information is then automatically verified against a check
database. If no negative information is found, an authorization slip is printed for
the check writer to sign. This slip allows the paper check item to be converted
into an electronic item through the ACH system.
The paper check is stamped VOID and either returned to the consumer or
retained by the merchant. Settlement is made to the merchant with an ACH
credit transaction that deposits the purchase amount into the merchant's account.
The benefits of this emerging process are enormous. Due to the compressed
processing time, check fraud can be detected days before conventional
paper-based methods. Merchants are informed of Non Sufficient Funds (NSF)
transactions as many as 10 days earlier, allowing the collection process to be
expedited and check databases to be updated sooner. This reduces merchant
loss from these accounts.
In addition to the above benefits, fewer individuals have visibility to the
customer's account information. Approximately 10 different people normally
handle a paper check before it gets to the Receiving Depository Financial
Institution (RDFI). With electronic check conversion, only the check writer and
the cashier will view the customer's account information.
Electronic Check Re-presentment
A complementary process to check conversion is electronic check
re-presentment. This is the process of converting a non-sufficient funds (NSF)
or uncollected funds check into an electronic item. These items are then sent
through the ACH network for collection instead of being manually processed by
a collection agency.
Check Verification
Electronic check verification is the process of using an electronic device to verify
information about a check being presented for payment. The information is
verified against data, which have previously been collected and stored in a
database. A verification compares information to a negative database, a positive
database, or combination of both.
New Internet Payment Solution
ECHO was one of the first and still few processors to accept credit card
payment transactions over the Internet. The addition of Magic check-related
services will allow ECHO to enhance its Internet payment options to include
checks as well as credit cards.
Having both credit card and check payment solutions under ECHO's
management and control makes ECHO one of a select few processors in the
nation who can offer such services to merchants. "The Magic acquisition
significantly contributes to ECHO's strategy of being a one-stop shop for
merchants," stated Barry.
Electronic Clearing House Inc. provides credit card processing, check
guarantee, inventory tracking services and various Internet services to more than
17,000 retail merchants and U-Haul dealers across the nation.
Through its subsidiary, Computer Based Controls, ECHO designs, develops
and manufactures software and point-of-sale hardware that is utilized as credit
card processing terminals, automated money order dispensers, utility bill
payment systems, and inventory tracking devices.
Certain of the above statements may be forward-looking statements that involve
risks and uncertainties. In such instances, actual results could differ materially as
a result of a variety of factors, including competitive developments and risk
factors listed from time to time in the company's SEC reports.
CONTACT: Electronic Clearing House, Agoura Hills
Donna Camras, 818/706-8999, ext. 3033
URL: echo-inc.com
e-mail: dcamras@echo-inc.com |
