Money Orders, Gift Certificates, Remote Payroll and Other Items

 

JEFFREY KEITH, Chief Financial Officer
3T
TRANSACTION TRACKING TECHNOLOGIES, Inc.
209  10th Avenue South, Nashville, TN 37203
 www.3tsolutions.com
copyright 2001 Transaction Tracking Technologies, Inc.
Amended 8/08/05 

 

 

Capturing the Hidden Profit – Executive Highlights

Advanced technology now enables retail companies to issue, track and reconcile any type of secure document at much higher profitability than before. Applications include money orders, gift certificates, remote payroll checks, corporate and vendor checks, and any official documents requiring MICR (magnetic ink character recognition) and sequential numbering.

 

The heart of the system is proprietary software.  When an authorized user keys a password and inputs data, the software drives a laser printer to create a document on blank safety paper. Simultaneously, the software records all document information in a relational database. The system links electronically via the Internet or dedicated line in order to automatically track and reconcile all issued items throughout the company’s remote locations. Multiple security layers prevent fraud, and the system delivers critical management reports each day.

 

The “open architecture” software adapts to any platform, and the hardware features “small footprints” to fit comfortably in limited retail spaces. Retail companies are using this innovative tool to take control of their cash positions and substantially increase profitability from secure documents.

 

Cash Flow

·        When a company controls its own secure document operation, it can expect a significant increase in daily float amount per location. This creates strong cash flow.[i]

 

Net Profit

·        When a company controls its own float, it maximizes its earning power through strategic cash management.

·        A recent study showed third-party providers paid their company clients only a portion of the fee income and no income on the float.[ii]

 

Fee Income

·        With this technology, companies not only retain all per-item service fees. They also gain significant revenue from abandoned property service charges (escheat).

·        On average, companies earn abandoned property fees on one percent of money orders each month, and 15 percent of gift certificates.[iii]

·        Most state escheatment laws require that abandoned property be turned over to the state, and place limits on service charges in this context.  You may wish to consult a lawyer in this regard.

 

Payroll Cost Savings

·        By using the new secure technology to issue payroll checks at remote locations, companies save on overnight delivery costs for payroll.

·        Eliminating pre-printed stock will save at least one half of paper cost per location each year.[iv]

 

Potential Advertising Revenues

·        Paid advertising imprinted on each document offers explosive potential for reducing or eliminating operational costs.

·        Selling ad space to national merchandisers not only generates advertising revenue but also increases rub-off product sales in stores.

·        Companies can offer coupons and other tie-in merchandising with marketing partners for the mutual benefit of both.

 

Fraud Prevention

·        Secure laser printers issue documents on blank safety paper to minimize the opportunity for theft and fraud.

·        The system offers four levels of password protection and other theft-preventive features.  When issuing money orders at the store level, there is one level of security.  There are four levels of security for all other functions, i.e., payroll, vendor payments, gift certificates, and lottery proceeds.

·        Daily electronic tracking and reconciliation uncover fraud attempts for immediate attention – rather than 30-45 days after the fact which is typical with outsourced providers.

·        Many companies find that using such a system results in a reduced Employee Dishonesty Insurance deductible.

 

Enhanced Brand Recognition

·        Software-driven laser printers companies to imprint money orders, gift certificates and other items with the company name and logo.

·        Marketing messages may be imprinted to promote other services.

 

Improved Customer Service

·        The technology delivers faster performance, for shorter customer lines.

·        If customers later have questions about issued items, the PC-based system can retrieve instant, accurate answers.

 

Ease of Operation

·        No additional staff is required.

·        The custom software and hardware are very simple and easy to use.

·        The program includes complete installation, training, system maintenance, and 24x7 toll-free support.

 

Capturing the Hidden Profit in Secure Documents

 

Until now, secure documents like money orders, gift certificates, and remote payroll checks have been considered support services or loss leaders, part of the cost of doing business. Managers have been challenged to simplify operating procedures, control costs and reduce fraud, while at the same time maintaining good customer service. Until now, the secure document operation has not been viewed as a profit center.  However, new technologies have completely changed the picture. Companies can now gain significant, steady profit from secure documents.

 

In the past, most managers assumed there were only two alternatives: outsource their secure document processing to a third-party provider and give up both control and income; or, keep the work in-house and contend with cumbersome administration. However, thanks to technological advances, there is now a third choice. Companies can earn more income without assuming costly administration – by choosing an automated internal system.  Advanced laser printing-on-demand technology and proprietary software now enable companies of any size to issue, track and reconcile secure documents with higher efficiency and security.

 

How the Technology Works

 

At the heart of the system is adaptable software that functions with either PCs or POS equipment, specifically the 3T STAR Mini-PC. When an authorized user keys the correct password and enters the amount, the software drives a custom laser printer to issue the document. At the same time, it records the data in the company’s relational database for completely automated tracking and reconciliation. Electronic links between remote sites and the central office assure timely communication, and the system produces critical management reports each day.

 

Documents are printed on secure blank paper with fraud prevention features including chemical and heat reactive inks, void pantograph, artificial watermark, microprinting, thermography and fluorescent fibers.  Specially formulated MICR toner assures readability and acceptance of the items for clearance. The custom-designed compact laser printers are ideal for small retail spaces where every inch of counter space has to pay its way.

 

Money Orders – An Overview

 

Over 1 billion money orders are sold annually. Statistics show over 25 percent of the American population has purchased at least one money order in the last 12 months.[v]  The money order is universally accepted as a recognized method of payment.

 

Approximately 94 percent of all money orders are sold by “non-bank financial institutions” such as convenience and grocery stores. The average U.S. retail site sells 554 money orders per month, with an average face value of $102 each. There are over 146,000 outlets in the United States that sell money orders.[vi]

 

Core money order customers are the 40 million “un-banked” individuals in the U.S who do not maintain formal banking relationships. Retail outlets also attract convenience shoppers who do maintain formal banking relationships. Both customers find it convenient to obtain multiple services under one roof.

 

Profit on money orders derives primarily from interest earnings on the float and service charges on abandoned property. When a retail company outsources its money order operation to a third-property provider, the company sacrifices both of these profit sources.

 

Two national companies offer third-party money-order services, Travelers Express and Western Union. Both of these companies continue to pursue a very aggressive acquisition strategy. They have managed to purchase most of their major competition over the years. Regional money order companies include Fidelity Express, Memo and Global, among others.

 

 

Taking Control – Interest Income on Float

 

“Float” is the time between the date an item is issued and the date it is redeemed, cashed or abandoned. During this “float” period, the company issuing the item can invest the funds to generate interest income, which can add up surprisingly fast. However, if the company outsources its secure document processing, the third-party provider keeps almost all the interest, and the company loses out.

 

The average float per money order is 9.6 days. Depending on demographics, float in some market areas will reach 18 days, for example, when immigrants send funds back to their home countries. Major vendors such as Travelers and Western Union do not share any float income with the retailer.[vii]

 

When a company controls its own float, it immediately improves its cash flow position. It can also invest the funds to generate significant interest income. Companies that have taken back control of their secure document operations earned between 5.5 percent and 8 percent on their funds.[viii] 

 

Service Fee Income

 

The average fee per money order in the United States is $.72. This is the fee the customer pays to the retailer for the purchase of the money order. Fees range from $.29 per money order in higher volume stores to $3.00 in some financial institutions. Generally, the retailer and the third-party provider share the issuing fee. Using automated in-house technology, companies retain all per-item service fees.[ix]

 

 

 

Escheat Fee Income

 

Companies can also assess service charges on abandoned property before it is conveyed to state custody in a process called escheat. Many money orders, gift certificates and other items go uncashed, and after a period of dormancy, the issuer can begin charging a monthly service fee against the face value of these items. These service charges produce a lucrative fee income stream.  Service fees range between $1 and $2 per month, and on average, one percent of money orders are abandoned each month, and 15 percent of gift certificates go unredeemed.[x]

 

Any financial instrument not redeemed by the purchaser must be remitted to the appropriate state’s abandoned property division after period of time dictated by state law. The period ranges from 5 to 15 years. In almost all the states, the issuer is allowed to charge a monthly administrative fee, which averages $1.50 per month, starting six months after the item was issued.

 

In order to charge the fee, there must a written contract between the purchaser and issuer. This is accomplished by placing contractual language on the secure item itself. This is a very profitable part of the business for both national and regional third-party providers. These providers do not share any escheat income with retailers. However, using the 3T Total Solution, retailers keep all escheat fee income.

 

Most state escheatment laws require that abandoned property be turned over to the state, and place limits on service charges in this context.  You may wish to consult a lawyer in this regard.

 

Rub-Off Sales

 

Another profit source consists of “rub-off dollars.”  Money orders attract new traffic into stores, and while customers are waiting for their money orders to be printed, they buy other items. Studies have documented that rub-off revenues range from $2 to $7 per money order sold.[xi]

 

Fraud Prevention

 

Travelers Express and Western Union use pre-printed money orders that are issued on dot-matrix printers. If any of the pre-printed items are stolen and then subsequently forged the retailer is required to reimburse the third-party provider. Pre-printed, multi-ply MICR-encoded document stock stored in remote locations is vulnerable to theft and fraud. This is significant considering fraud attempts increased 55 percent from 1997 to 1999.[xii]

 

The 3T Total Solution does not employ pre-printed paper stock. No document is created until requested by an authorized user, who keys a password. This significantly reduces fraud for the retailer. Second, the issuing device allows the retailer to produce a multitude of secure items, including remote payroll checks, gift checks and certificates, vendor checks, rechargeable phone cards, and other documents.

 

Not only does 3T’s secure laser printers issue documents on blank safety paper to minimize fraud, the system also offers four levels of password protection and other theft-preventive features.  When issuing money orders at the store level, there is one level of security.  There are four levels of security for all other function, i.e. payroll, vendor payments, gift certificates, and lottery proceeds.  What’s more, daily electronic tracking and reconciliation uncover fraud attempts for immediate attention – rather than 30-45 days after the fact which is typical with outsourced providers. And finally, many companies find that using such a system results in a reduced Employee Dishonesty Insurance deductible.

 

Gift Certificates

 

The retail industry has had a real problem reconciling gift certificate programs. The process is often time-consuming and inefficient. Gift certificates are typically issued on pre-printed stock and are easily stolen and forged. The 3T Solution would eliminate the fraud and automatically reconcile the retailer’s gift certificate program electronically.

 

A considerable percentage of the gift certificates become abandoned property – historically 12 to 18 percent of total issued.[xiii]  By issuing and tracking their own gift certificates using automated software, retailers stand to gain sizeable profit in escheat service charge income.

 

Remote Payroll

 

Many employees in the supermarket and convenience store industry do not have checking accounts. Consequently, an efficient system such as direct deposit of payroll checks is not an option. This poses a logistical problem for retailers in disbursing payroll checks. Retailers often rely on expensive courier services or Federal Express, and costs for delivery alone can approach $50,000 per year for a 100-store chain.[xiv]

 

All of the cost and logistical hassle is eliminated with the remote payroll function of 3T’s automated system. A time/date-stamped file is issued from the corporate office on the night before payday and transmitted electronically to all the stores. Following the time/date of the file on payday, the store manager enters his or her password, and then all of the paychecks and stubs are laser-printed on blank safety stock at the store level. Companies can even personalize human resource messages to all employees.

 

By using the new secure technology to issue payroll checks at remote locations, companies save on overnight delivery costs for payroll. And eliminating pre-printed stock will save at least one half of paper cost per location each year.[xv]

 

“The integration feature allows us to print remote payroll and vendor checks adding substantial cost savings to the organization,” says Sandra Brimhall, Vice President of Information Technology for Sales Service Partners. Currently, SSP is saving $30,000 to $50,000 per year on payroll processing.[xvi]

   

 

 

Vendor Checks

 

Almost all retailers have to make several payments to vendors at the store level. Liquor vendors are one example. In 35 states, the law requires retailers to pay for liquor upon delivery. In many cases, retailers pay with either cash or manual checks. Both methods are subject to fraud. With the 3T solution, the store personnel must enter a personal password and invoice number to print a vendor check. Only vendors authorized by the corporate office will be listed in the PC database, with a dollar limit per vendor, so the system will not process illicit checks.

 

Rechargeable Phone Cards

 

The sale of prepaid phone cards has become a booming business over the past couple of years. However, phone cards in pre-determined denominations ($5, $10, $25, etc.) are already activated and therefore subject to theft. Also, the customer’s choices are restricted. The 3T Solution eliminates inventory liability and offers flexibility for the customer. The phone card is activated at the point of sale only after the customer makes payment. Also, the phone card can be for any amount above $5. And the customer can recharge the phone card at any time.

 

Regulatory Environment

 

In 45 states, non-bank financial institutions are required to obtain a money transmitter’s license in states where they propose to sell money orders. The Department of Financial Institutions in each of the states is the primary regulatory body responsible for the issuance and monitoring of license requirements. Generally, states require bonding and minimum net worth.

 

Over the past 10 years, Travelers Express and Western Union have spent significant time and money lobbying all of the states to raise the licensing requirements. Their objective has been to deter retailers from selling their own money orders, and they had success in many states.

 

However, according to Ezra Levine, attorney and partner with Howrey Simon Arnold & White of Washington, DC, “Licensing is not a barrier to entry into money order sales. It’s straight-forward if the company can demonstrate sound practices.”  Levine’s firm has handled licensing for dozens of companies coast to coast, and he has been involved in the enactment or modification of the state laws in over 12 states.[xvii]

 

Levine notes that an automated system such as the 3T Total Solution helps a money order issuer demonstrate good practices to state regulators. The system accounts for each money order sold, and also tracks and reconciles each item through the clearing process, recording all the data for a clear audit trail.

 

 

Faster Customer Service, Lower Costs

 

The old standard for issuing a money order, gift certificate or other secure document involved pre-printed, multi-ply stock and a manual, labor intensive process.  Customer service was slow.

 

By contrast, new PC-based software drives custom laser printers that print secure MICR (Magnetic Ink Character Recognition) documents, including money orders, remote payroll and vendor checks, gift certificates, and other items. The software is easy for employees to learn and use, and the hardware has been downsized to fit conveniently in small spaces. With faster performance, the customer has a shorter wait and a better experience.

 

Quantifying the value of better customer service isn’t easy, but everyone understands its importance. Automating the secure document and money order process results in faster customer service. What’s more, if a customer should have a question about the status of a secure document or money order, the company can respond faster with more accurate information.

 

Further, the use of blank, laser-printed security document stock will eliminate the need for costly pre-printed, multi-ply stock. When a company eliminates pre-printed document forms, it will save at least half the cost per location each year.[xviii]

 

A More Effective, Cost-Efficient System

 

3T’s PC-based Total Solution comprises every element a company needs to retain control of the entire revenue and profit stream. For over ten years, organizations across the country have used 3T’s Total Solution to issue millions of dollars worth of money orders, gift certificates, corporate and vendor checks, remote payroll checks and other official documents. The Total Solution includes five interdependent components: proprietary software including secure MICR fonts, secure blank laser paper stock, specially formulated MICR toner, customized laser printer, and 24x7 support.

 

Full details can be found by visiting the 3T Web site: www.3tsolutions.com. They will also produce, at no cost or obligation, a profitability comparison analysis to show how much additional profit a retain company can expect by using this advanced technology. For details, call toll-free: 877-343-9900.

 

End Notes