For Matt Greenough, the director of cash management at Little Caesars Pizza, fixing the problem with checks at the privately held international chain was not just a matter of making an inefficient process more efficient. He decided the real solution was for the company to never have to deal with checks at all. So instead of fussing with the installation of remote deposit or ACH point-of-purchase conversion equipment, he decided to eliminate the need for either by eliminating checks as a payment method entirely–at least, in very select markets. "As an experiment, it made sense," says Greenough. "We don't feel we've lost the competitive edge. If we are losing customers to competitors who are still accepting paper checks, can we live with it? The answer is yes–at least, at [a couple of locations]."
While Greenough only launched the checkless experiment in Las Vegas in December 2003 and then a few months later in Houston, two years later family-owned Little Caesars–with $1.5 billion in revenues–has moved well beyond that. "We've already pulled check acceptance from 10 out of 18 markets," says Greenough. "Implementation is complete for about 60% of our stores. Our goal is to eliminate paper checks as a payment method in 2006."
While the Little Caesars initiative may seem bold to many, it certainly reflects the dreams of most. Paper checks are a vestige of a pre-digital economy, and although some consumers and most companies still cling to them, they are increasingly coming to realize that technology exists, through cards and other electronic payment methods, to set them free.
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Bankers too are quickly realizing that some companies like Little Caesars want to skip Check 21-authorized conversion of paper checks into electronic payments and go straight for the finish line of conducting business with no checks. "While solutions like remote deposit and ACH point-of-purchase conversion provide a way to handle a declining payment method more efficiently, their cost-effectiveness depends largely on a merchant's payment mix and the number of store locations and point-of-sale terminals," says Pete Wheeler, director of product consulting and industry strategy at Bank of America. "Anything requiring new infrastructure is potentially problematic. Why invest in a dying payment mechanism?"
Nowhere is this sentiment more apparent than in the retail sector, where companies wrestle with persistently high losses from bad checks. Here, however, most are pinning their hopes on the dramatic rise in the use of debit cards linked directly to checking accounts. Inevitably, they argue, this will lead to the paper check's demise. "Sometimes the best action is no action," says Robert J. Pedersen, vice president and treasurer at the U.S. Postal Service. "Given the declining volume, I have not seen a case for drastic action."
Certainly, the trend away from using checks has been clear in the case of Little Caesars. Between 2000 and 2005, checks as a percentage of the overall consumer payment mix for the restaurant chain dropped stunningly to 0.75% nationwide from 18%.
But despite the drop, Little Caesars still faced an increasing problem with bad checks that at times threatened the company's relationship with otherwise good customers who would get zonked with a collection fee five times the cost of a meal. "Our collection strategies didn't discern between good customers writing bad checks and those customers trying to commit fraud," Greenough notes. While Little Caesars became more efficient at recovering funds, "what we risked in the end was our relationship with a good customer. The more we thought about that, the more we realized that's not what we want to do."
Another driver behind the move toward going checkless at Little Caesars has been an evolving philosophy that an efficient, easy-to-handle employee experience can also improve customer relations. Removing checks has shaved one to two minutes from checkout times, and store associates can focus on correctly handling cash and accepting card payments. Although some of these improvements are difficult to measure, Greenough admits, "your gut says that what's happening is meeting your expectations, even though it is hard to measure. It is common sense."
KEEP THE CUSTOMER AND EMPLOYEE SMILING
One challenge not yet entirely addressed is developing a training program at the store level to arm counter staff with the right words for explaining the new no-check policy to customers. Initially, Little Caesars gave its employees a script, but the company found that educating employees about the reasons for the change and then letting them genuinely express the policy in their own words worked better. The company is now developing a beefed-up training program to help employees with the delivery of the message.
Beyond touchy-feely improvement for employees and customers, the company has seen some welcome savings from reduced bank charges, the elimination of losses from bad checks and a 50% reduction in the number of deposit corrections–to 0.9 corrections per month from 1.8.
But Greenough cautions that eliminating checks may not be the right approach for all markets, citing regional variations in consumer behavior around check usage. For example, he cites Los Angeles as a market where Little Caesars customers still rely heavily on checks.
How did Greenough, a director of cash management, pull off what any treasurer would certainly consider a rather gutsy effort? It started with a seminar sponsored by Bank of America at which he heard a presentation by Rite Aid Treasurer Glenn Gershenson about his use of cross-functional committees to help set new policies in the payments space. "In an earlier part of my career, I had some experience working cross-functionally with front-line operations staff, but I never really thought of the concept in terms of treasury," Greenough recalls. "Glenn shared his experiences and that gave me [ideas] on how to sell broader initiatives–and ultimately how to sell treasury as a value-added support area, not just a cost center."
So Greenough helped put together a Payments Committee that included senior finance leadership, the senior vice president of operations, the vice president of marketing and the senior vice president of franchise services. There was skepticism at first, but the committee proved a perfect venue to paint the big picture on payments trends, including the inevitability of the check's demise.
According to Greenough, the cross-functional strategy can take treasury-specific concepts and place them into a broader context. He believes that the team effort has helped lay the groundwork internally for another low-apple strategic initiative, the introduction of contactless cards. An emerging payment alternative that uses radio frequency identification (RFID) technology to eliminate the physical swipe of a card at the point of sale, Little Caesars is considering a pilot using these new cards in its Detroit restaurants. Ultimately, Greenough would like Little Caesars to consider an even larger initiative around RFID. "You need to show you can add value to the business in tangible ways in order to become more strategic," says Greenough. "In practice, you need others to help sell the little ideas across the organization, because if the little ideas are embraced, then the bigger ideas go better."
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