telecheck and tyms past

Years ago, when I was in college, I had one of those friends who never quite had it together. You know the type; I'm talking lost a debit card and took three months to get a new one because of some sort of "mixup" with the credit union that I think consisted mostly of not calling them for three months. In the mean time, our mutual friend ended up in a quandry: at WalMart, at one in the morning, with a $2 purchase and no cash. Well, this was no problem for that particular space case: he had his checkbook.

If you think about it, it's actually pretty remarkable that grocery stores accept personal checks. It's a very high risk for of payment. Even if the check is genuine, the customer could be writing it against an empty account. On top of that, with modern printers and the declining use of MICR, forging checks is trivial. When you offer a check, the retailer has very little to go on to decide whether or not you're good for the money. Surely, fraud must run out of hand—and yet, just about every major grocer still accepts personal checks.

Retail point-of-sale acceptance of personal checks is the product of an intriguing industry that handles all the challenges of checks at once: a combination of digital payment network, credit reporting firm, insurer, and debt collector known as a check guarantee service. The check guarantee is older than the ATM, and depending on how you squint, check guarantees are quite possibly the first form of real-time, telecommunications-based point of sale payment processing.

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Harry M. Flagg was born in Frankfurt in 1935, but spent most of his childhood in Milwaukee, Wisconsin. He attended MIT, major unknown, and graduated in 1957. I think he was probably an ROTC student, because some sort of Navy service took him from Massachusetts to Hawaii, where just a few years later he was out of the Navy and working as some sort of "management consultant." Flagg was entrepreneurial to his core, so while I knew few details about it his consulting work is unsurprising given the wide variety of business ventures he was soon involved in. We can be fairly confident, though, that his clients included retailers—retailers who struggled with personal checks. In 1964¹, Flagg quit consulting to focus on checks alone.

His idea was straightforward: keep a list of people known to pass bad checks. When a retailer is given a check, they just check the list, and if the writer's name appears they should turn the check away. As legend has it, Flagg took the idea to a Boy Scout meeting where he happened to describe it to a crowd of Honolulu business leaders, one that presumably included his soon cofounder Bob Baer. They agreed on an informal arrangement: Honolulu businesses would report writers of bad checks to Flagg's consulting office, where his small staff would look up names on request. It was such a success that Flagg's staff were soon overwhelmed. Tracking the writers of bad checks became Flagg's full time business.

He christened his new venture TeleCheck—Tele, perhaps, for Telephone, or Telecommunications. Whether his MIT education or his Navy experience, something had introduced Flagg to the potential of the computer. Having seen his busy office staff, taking calls and digging through files, he imagined TeleCheck as a centralized, real-time computer system. By the time he announced the new company, an IBM system was already on order. General manager George Duncan set about designing and testing the process, and somewhere along the way they picked up the engineering talent to build a database for questionable checks.

As explained in TeleCheck's ads, accepting checks required only a phone call. Once connected to a TeleCheck operator, customers curtly said their TeleCheck account number followed by the driver's license number of the person who had written them a check. By the time TeleCheck matured, they settled on a system of three possible results: a "code 1" indicated a low-risk check that TeleCheck would guarantee. A "code 3" meant that TeleCheck didn't have any specific evidence against the check writer, but the value of the check or other risk patterns meant that TeleCheck was not willing to guarantee it. Worst of all was "code 4," telling the retailer that TeleCheck would absolutely not guarantee the check, because the writer already owed them money.

A 1964 newspaper photo shows TeleCheck operator Dorothy Nicholson sitting at the console of an IBM 1440, Harry Flagg looking on from the side. She's answering the phone with her left hand, right hand poised on the keyboard of the teletypewriter. This is probably a staged shot for the newspaper, I sincerely hope that they found Dorothy a headset (admittedly a surprisingly expensive proposition in the 1960s). It also contradicts claims in other newspaper articles that TeleCheck didn't go into operation until 1965, but I think that there was an extended "trial" phase before the service was generally available. I pay attention to these details because they tell us something about the company's early days. Flagg brought on quite a few business partners, so many that I struggle to keep track of them, and I assume that the computer was much of the reason. They were probably renting it, but that rate would have apparently been at least $1,500 a month, equivalent to about ten times that today. TeleCheck had capital. I assume that many of their early customers, taken from that Honolulu Boy Scout meeting, were investors as well.

Into the IBM 1440, TeleCheck combined several data sources: they formed a partnership with the Honolulu Police, from which they received copies of police reports on bad checks. They invited banks to submit records of bad checks they'd received. This information formed what Baer called a "positive" credit file. Instead of collecting data on all consumers, TeleCheck collected data on only the writers of bad checks. This distinction doesn't seem particularly interesting today, but TeleCheck really leaned into it, perhaps because consumer credit bureaus were both a growing business and a growing source of controversy in the mid-1960s. It probably served TeleCheck's interests to maintain some space between themselves and proto-Equifax organizations like the Hawaii Credit Bureau.

You might wonder about the business model; one of the advantages of checks is that they are relatively cheap to process. TeleCheck charged businesses a fee, at least initially set at 2%, but that wasn't just for the risk database. For the merchants, TeleCheck actually had a much more compelling offer than tracking check frauds. TeleCheck would guarantee each check they approved. If a merchant accepted a check on TeleCheck's advice, and the check bounced, TeleCheck would reimburse the merchant. In exchange, it asked for the bad check to be endorsed over to TeleCheck themselves.

Eating the cost of these bad checks could have been rough on TeleCheck's books, but they had their reasons. First, the reimbursements gave their customers a clear incentive to submit every bad check to TeleCheck. While TeleCheck marketing emphasized police and bank sources, it's clear that the primary source of their data was always their own customers.

You might realize that the guarantee service could create a new kind of fraud: a business might fabricate a bad check, or even knowingly accept one, and then let TeleCheck reimburse it. TeleCheck's insurance scheme was closely coupled to their credit bureau scheme. In other words, TeleCheck was able to control their risk on reimbursing bounced checks by making the decision of whether or not to accept the check at all. For businesses to claim reimbursement on a check, they had to prove that TeleCheck had agreed to guarantee it. They did that with an authorization number, a four-digit code provided over the phone that the cashier wrote on the back of the check before it was deposited.

Second, it was a business of its own: TeleCheck was a debt collector. And not just any debt collector, but one with the leverage of control over check acceptance at hundreds of businesses. TeleCheck presented this as a simple arrangement that does seem quite charming compared to the modern credit reporting industry: you could pass one bad check on TeleCheck's dime, but only one. Your identification remained in TeleCheck's database of unacceptable risks until you contacted them and made good on the original bounce. In other words, rip off TeleCheck and you'll never pay by check in this town again.

When businesses rejected checks, due to a negative TeleCheck response, they were instructed to provide the customer a "courtesy card" with an explanation of TeleCheck's operation, ways to contact them, and a reference number for the database entry that lead to the decline.

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One of the interesting things about TeleCheck is its place in the history of check guarantee and its rapid growth. TeleCheck was not the first check guarantee service, Flagg personally knew of at least one other in New York City. For that reason, and likely others, TeleCheck had been given legal advice that they could not protect their business model by patents or other means. Flagg told the Honolulu Star-Advisor that "this means that we have to expand just as fast as possible before others get the same idea." And expand they did.

TeleCheck had barely started commercial operations, perhaps not started them at all, when they renamed from TeleCheck to TeleCheck International, signaling ambitions far beyond Hawaii. Existing operations were moved to TeleCheck Hawaii, a subsidiary, which would soon be joined by TeleCheck New York.

Today, checks seem an odd way to pay at retail because of the ubiquity and stronger security guarantees of debit and credit cards. In the 1960s, though, card payments were not widely available—if you weren't carrying cash, you paid by check. Checks were particularly problematic in the case of travelers, and that explains TeleCheck's Hawaiian origins. Checks are much easier to confidently accept when the bank, or even better the writer, are known to the merchant. That usually meant that personal checks had to be drawn on a local bank, at the very minimum, and initially even TeleCheck only guaranteed checks from Hawaiian banks.

But what, then, of tourists? Merchants would sometimes accept out-of-town checks with additional identification measures that ranged from copying down a driver's license to taking a photograph and thumbprint. Most just didn't, expecting visitors to obtain "travelers checks" issued by a well-known national bank and then usually cashed at another of that bank's own branches. Besides the inconvenience to the traveler, tourism economies like Honolulu's must have acutely felt the unwillingness of visitors to spend money when it involved multiple preparatory steps.

TeleCheck knew this going in, so expansion was inevitable. TeleCheck Hawaii and TeleCheck New York were set up as independent operations with their own computers and databases, but they were connected: bad check records from each were automatically transmitted to the other. As TeleCheck expanded, data sharing between regional operations built a distributed nationwide database, one that allowed a merchant in, say, Honolulu to accept a personal check from New York under full guarantee. If you asked Flagg, or Baer, all that was needed for complete nationwide acceptance of personal checks was a TeleCheck computer in every major city. Within a few years, TeleCheck International reorganized as TeleCheck Services, a franchise corporation. They started recruiting franchises in every state and, within a decade, Canada.

TeleCheck grew extremely rapidly, the kind of growth we might call a "unicorn" today. In 1969, TeleCheck estimated that their seven full-time operators took about 70,000 calls a month, 100,000 in the holiday shopping season. They guaranteed $6.75 million in purchases each month and paid out over a million a year in bad check reimbursements.

Check guarantees weren't everything, though. TeleCheck also diversified, expanding into just about every business they could think of until it started to seem comical. The same year that TeleCheck started, they acquired a company called Professional Services Inc. that did something we would now recognize as medical billing. It only took a couple of years for TeleCheck to dominate the Hawaiian medical and dental billing industry. In the words of one journalist, TeleCheck was hooked on computers, and hunted for any opportunity to make money off of the IBM 1440 and the larger machines that soon joined it.

Consider, for example, Match-Mate: the premier computerized matchmaking service of 1960s Hawaii. Lonely islanders filled out a questionnaire, conveniently distributed as a newspaper ad, and mailed it in with a payment of $7.00—by check, of course. The questionnaires were entered into TeleCheck computers and participants received a report with two likely matches and a booklet entitled Dining in the Islands. Considering that the book alone would "retail for $5.00 and has a full purchase price of $75.00" it was quite the deal for love. Well, maybe not, Match-Mate didn't last for long. It's interesting though that, alongside the address of TeleCheck International, the newspaper ads mentioned a CDC 3100.

The IBM 1440 was something of a budget computer, intended as a lower-end alternative to the "flagship" IBM 1401 mainframe for the many small businesses and accounting firms that couldn't afford a 1401. Within a couple of years, TeleCheck appeared in a directory of computer services provider as a consulting, accounting, payroll, etc. data processing firm with a Honeywell 200, a semi-clone of the IBM 1401 that could mostly run the same software, so they had apparently upgraded. Then, in 1966, Match-Mate associates TeleCheck with the CDC 3100. The 3100 was the runt of the CDC 3000 family but still ran about $120,000, over a million dollars today. Once again, all of the machines were likely rented, but still... in its first two years, TeleCheck acquired more computers than most established businesses would over five.

Some of TeleCheck's side ventures were quite logical. They had accounting and payroll businesses, which naturally fit the transaction processing skillset they had built for check guarantees. Consumer credit cards emerged during the 1960s, and TeleCheck was enthusiastic about those too. I don't think the scale of this operation was ever that large, but TeleCheck apparently handled online verification for some retailer credit cards in Hawaii, quite possibly by treating them as a special kind of check (a trick that TeleCheck would use repeatedly over the years to offer new services over existing equipment). Once again leading me to suspect that Flagg was doing some kind of engineering at MIT and in the Navy, TeleCheck's software situation seemed sophisticated for the 1960s. Newspaper articles describe real-time multitasking between batch processing of medical billing folios and online check inquiries. In a couple of years, they threw some sort of telephone order business and construction supply catalog into the mix.

But TeleCheck didn't keep to its computer roots. By the end of the 1960s, TeleCheck owned Honolulu Business College and Cannon's College of Commerce. They owned Minneapolis-based Boatel, manufacturer of houseboats and snowmobiles (Flagg seemed to have moved to Minneapolis at some point along the way). TeleCheck's Marine Science Division, made up mostly of subsidiary Pacific Submersibles, operated a Perry PC5C research submarine for which they were building a custom robotic manipulator. In 1968, TeleCheck Hawaii announced a complete rebranding to Data-Pac, a name that would better reflect their diversified interests. The franchise parent, TeleCheck International, kept the TeleCheck name.

In 1972, TeleCheck International went bankrupt.

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The story of Harry Flagg is a complicated one, and I do not think that I have all of the information. There are just certain, you know, oddities. In the mid-'60s, Flagg was repeatedly lauded as the founder of TeleCheck. Robert Baer seems to have been around from the beginning, but it's not until later on, in the '70s and '80s, that he is widely referred to as TeleCheck's founder. Flagg is conspicuously absent from these versions of the company's history.

Similarly, the 1972 bankruptcy, triggered by the parent of a company TeleCheck had acquired calling the loans it granted to facilitate the acquisition, left little paper trail. Well, it was a bankruptcy, so there's a voluminous docket of the legal and financial details, but TeleCheck's leadership and their thinking are now opaque. We do know this: after the 1972 bankruptcy, Flagg was no longer in charge of TeleCheck International.

In 2005, a court ruled for the FTC in its case against Trek Alliance and its founders, including Harry Flagg and his son Kale Flagg. Flagg had moved to Arizona and founded Trek Alliance in 1997, a vague company with a confusing set of subsidiaries that included some sort of sales training. Primarily, though, Trek—which is unrelated to the better-known bicycle manufacturer—was a pyramid scheme. At least, that's what the court ruled. According to the FTC's complaint, Trek's "Independent Business Owners" sold water filters, cleaning products, nutritional supplements, and beauty aids. Trek's compensation plan, "one of the most lucrative in the industry," included a series of Bonuses and a 22-level Pay Plan assigned according to dollar volume of an Independent Business Owner's "downline."

This is, of course, the gold standard of business excellence in modern Utah, but Flagg was in Arizona and the 2000s. He and the other parties settled, denying fault but agreeing to shut down Trek. Together with their insurance company, they paid millions in restitution and suffered a permanent injunction against involvement in any multi-level marketing schemes.

Honestly, I'm not inclined to view Flagg as a fraudster, although it would be deliciously ironic considering where he started. I think he was just a little too ambitious and not quite cautious enough, entangling himself in everything that sounded like a good idea until it was just too many things to keep up. Still, how remarkable it is that the creator of the nation's most successful anti-check-fraud scheme would become separated from it, only to later be caught cashing checks from the top of a pyramid scheme. Now that's vision.

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Despite TeleCheck's over-expansion and leadership troubles, the company was unstoppable. Baer became president of TeleCheck Hawaii while his son, Jeffery Baer, moved to Denver and established the headquarters of TeleCheck Services Inc., the new parent company of the TeleCheck franchise system. Those franchises multiplied: here in the Southwest, TeleCheck Texas was founded in 1982 and rebranded to TeleCheck Southwest two years later, when it bought the franchise rights for New Mexico, Oklahoma, and Arkansas. TeleCheck Texas had processed $325 million in checks in 1983. Elsewhere, there were TeleCheck franchises operating in more than half of the US states, several Canadian provinces, and Hong Kong.

Along with expansion came technical improvements. TeleCheck Hawaii, perhaps because of its origin as the first TeleCheck franchise, was always independently minded and eventually left the franchise system to go it alone as Uni-Check. Before they left, the introduced the first interactive voice response (IVR) check verification system. The fully-automated, touch-tone based IVR system expanded to other TeleCheck franchises, who named the automated voice "Samantha." TeleCheck liked it so much that they bought the developer, a company called Real-Share.

TeleCheck had other ideas, as well. Perhaps inspired by Ma Bell's "dataphone" efforts, TeleCheck launched the first point of sale electronic payment terminal I know of, if you are generous about the definition ². The first-generation TeleCheck Terminal, introduced 1980, was a protrusion of the front of a standard pyramid phone that read magnetic stripes and sent them over the phone line. Instead of typing the digits from a check and driver's license on their phone keypads, merchants could call into TeleCheck and just swipe a card. Of course, this only worked for cards, drivers licenses and credit cards that TeleCheck processed, but it was a hit nonetheless.

Nationwide expansion of the TeleCheck service necessarily entailed nationwide expansion of the TeleCheck network. With each franchise operating independent computers that shared records with the other, TeleCheck was a sophisticated, networked operation by the standards of the time. As it turned out, they had help, from one of the most advanced computer networking companies. In 1980, TeleCheck Services was acquired by Tymshare.

Tymshare is, to me, one of the signature brands of the era of Business Computing. As the name suggests, twee spelling and all ³, Tymshare started out as a pay-by-the-minute time-sharing provider. Founded in the same year as TeleCheck by two ex-General Electric Computer employees, Tymshare grew out of UC Berkeley by selling time on an SDS 940 computer (initially borrowed from UC, later rented themselves) running the Berkeley Timesharing System. The combination of the 940 computer (itself mostly designed by UC Berkeley), the BTS operating system, and the dial-in timesharing model made Tymshare one of the most affordable routes to serious computing. The company was tremendously successful, but time-sharing was a short lived industry. Computers were getting faster, smaller, and cheaper every year, so the set of customers that needed a computer but could not afford their own got smaller and smaller. Tymshare probably saw that coming, because like early TeleCheck, they aggressively diversified into just about anything that a computer could do—including check guarantees.

As Tymshare grew, they purchased more computers, and larger. In the late '60s, they were operating dozens of machines running a largely custom operating system. They had economized on many of their acquisitions by running the acquired software on their time-sharing fleet, which was efficient but challenging for applications like TeleCheck that were designed around a central computer (for each franchise). Tymshare's business wasn't as simple as connecting a user to their nearest computer; they needed to accept dial-in calls from around the nation and then connect them to whichever computer ran the requested application, potentially on the other side of the country.

The solution, remarkably prescient of later wide-area networks, was a cutting-edge architecture of Varian 620 minicomputers that controlled banks of telephone modems and forwarded traffic to a set of SDS 940 computers called "supervisors." The role of the "supervisor" was very much what we would call a "router" today: they packetized data from the Varians and then routed it to other 940s according to a virtual circuit switching scheme. While the system initially connected dial-in users to 940s, it was readily extended to building arbitrary circuits between any of the serial interfaces of the Varian "edge nodes."

A business that wanted to offer a dial-in service to a wide area could save a tremendous amount of money on phone lines and modem banks by instead purchasing a small number of leased lines to a Tymshare data center. Their users could then call any of the Tymshare access phone numbers, where they would receive a command prompt from the answering Varian. When they typed the keyword assigned to the interconnected computer system, Tymshare's network built a circuit from a modem in one data center to a modem in another, connecting the caller to the customer's computer across their own nationwide network.

In 1976, Tymshare separated their network infrastructure into a separate company, Tymnet, which registered as a telecommunications carrier. Tymnet would ultimately outlive Tymshare itself, becoming the "industrial internet" before the contemporary buzzword or, really, the internet that spawned it. Despite some technical challenges originating from Tymnet's proto-internet architecture, everything from credit card transactions to supply chain notifications to consumer dial-up ISP traffic ran over Tymnet for decades after. Tymnet provided modem bank services to AOL, for example, and some of the vintage 1970s Tymshare dial-in numbers are still in service with various contract modem providers.

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After its Tymshare acquisition, TeleCheck had a nationwide computer network, significant computer capacity, and an appetite for technical sophistication. It was a troubling time for a check guarantee firm, though. A new technology called Electronic Funds Transfer, or EFT, let retailers withdraw money directly from customer's accounts using only their debit cards. TeleCheck and Tymshare had actually found some business processing these transactions, but for the most part it was a separate industry that competed with checks. Baer cautioned that there was no reason to panic, as consumers would continue to use checks for many years to come, but there were clearly other things underway at TeleCheck. They were building their own transaction processing network.

I started thinking about TeleCheck because I was pumping gas and looking around for anything to distract me from how much it costs these days. Attached to the fuel dispenser, in between a half dozen other mandatory regulatory notices, was a sticker with the bright red and white TeleCheck logo. Rather than the "Your Check Is Welcome Here" verbiage used by early TeleCheck decals (back when many retailers did not yet accept personal checks from unknown customers), this one had decidedly less interesting text: "When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction."

In 1984, Tymshare, and TeleCheck with it, were sold to McDonnell-Douglas. McD-D, as I like to call them, was a formidable aerospace and defense contractor that was feeling an acute need to diversify as "peace broke out." They are also known, perhaps mostly due to their 1997 merger with Boeing and its effects on that company, as a bit of a backwater for actual engineering. They didn't hold on to Tymshare for very long, just a few years to give TeleCheck the curious property of a check guarantee service backed by F-15s.

Around the same time they were acquired, TeleCheck introduced a next-generation payment terminal that incorporated an MICR check reader along with support for newly standardized credit cards. This terminal followed the same basic model, of calling in via Tymnet and then sending the card or check contents over the phone line. This method of handling credit cards proved short lived as the industry reorganized and security requirements became far stricter, but it got TeleCheck equipment into a huge number of retailers. In 1989, McD-D, unsatisfied with the finance industry and perhaps ginning up the Gulf War, sold their entire software division. TeleCheck's increasing success as a general payments processor no doubt helped attract the buyer: First Data.

First Data probably qualifies as obscure, as they have few consumer-facing options, but they're a giant in payment processing. First Data provided the original infrastructure for both Visa and MasterCard before becoming part of American Express, who continued to operate the company as a general financial information systems company until they spun it out again. Back in the early '90s, though, TeleCheck found itself as a subsidiary of a company that also processed credit and debit transactions. It was only natural to unify those business lines into one, which TeleCheck called Electronic Check Acceptance.

Picture with me, in your mind's eye, the Verifone TRANZ 330. You have no idea what I'm talking about, of course, but if you're about my age or older you would recognize one. The Tranz 330 was the first widely successful credit card payments terminal, and anchors the Verifone brand name as a manufacturer of devices that verified payments over the phone. In practice, the TRANZ 330's main purpose was to read the data from a credit card, accept a keyed-in dollar amount, and then connect (usually over Tymnet) to a backend computer to authorize the transaction.

It could do much the same for checks: one of the features of the TRANZ 330 was check authorization, designed specifically for TeleCheck. The cashier could press a key to select check authorization, follow prompts to enter the check information and swipe the writer's driver's license, and then get back an authorization code (or a decline) on the terminal's screen.

The TRANZ 330 represented a milestone in two ways. It was the first payment terminal with TeleCheck support that resembled modern payment terminals in function. Earlier TeleCheck terminals were primarily phones with a payment card reader attached to them, the TRANZ 330 was not a phone at all and managed modem calls transparently to the user. Second, it represented a shift from TeleCheck providing a complete end-to-end solution to TeleCheck as one of a number of services supported by a common payment frontend.

After the First Data acquisition, TeleCheck was further integrated into other payment equipment, but it won back the branding. The TeleCheck Accelera and TeleCheck Eclipse, both manufactured by Verifone but bearing the TeleCheck logo, looked very much like every other credit card terminal but with the addition of an MICR check reader and slip printer. The added hardware allowed the terminals to read the check automatically, and also to print the authorization code on the back.

When these devices were introduced, the expectation was that a merchant would use the terminal to "authorize" a check (getting a TeleCheck guarantee on it), and then separately deposit the check with their bank. This wasn't all that different from how credit card transactions were handled at the time, with authorization usually done in real time (if at all) and "capture" (the actual payment) submitted as part of a batch at the end of the day. There was still a lot of paper handling involved, though, and during the 1990s it was clear that shipping slips of paper around the country was not a suitable long-term plan for checking.

Since the 1980s, a system called the Automated Clearing House (ACH) had been brewing among various bank coalitions and, later, the Federal Reserve Bank and an organization called NACHA: the National Automated Clearing House Association. ACH was one of the first standardized forms of computer payment, basically just a specification for a text file that contained the basic information for check-like transactions. Instead of exchanging paper checks, banks uploaded a text file to the ACH and then downloaded another text file later. Those files represented transactions in and out, processed in the banks and the ACH platform as a once-daily batch. ACH caught on for many of the same purposes that checks had fulfilled, like payroll (commonly called "direct deposit") and payments to savvy billers that wanted to avoid card payment fees (commonly called "e-check").

Since an ACH transaction is pretty much just a line in a text file with the same numbers you would find on a check, it is superficially possible to take someone's check, copy down the numbers, and then enter it as an ACH transaction. In actual practice this wasn't allowed—until 2000. That year, NACHA adopted a provisional set of rules for "point of purchase entry," the on-the-fly creation of ACH transactions from a point of sale system. In the real world of retail, where cashiers are not excited to ask for someone's bank account and routing numbers, wait for the consumer to figure them out, and then try to key them in correctly, this pretty much universally turned into "check conversion."

The idea of check conversion is pretty simple: you "pay by check," but when the cashier takes the check from you, they actually put it into a terminal that reads the check information and uses it to create a technically unrelated transaction in an ACH batch. Most retailers use slip printers that add some tracking information (like a transaction number) to the back of the check, and stamp it "void" with a message that it has been "converted" into an ACH transaction. Some retailers would even return the voided check to the consumer as a sort of "receipt" of the ACH transaction, although I don't believe this practice is still common.

To the average person, there is hardly any difference: you write a number on a check, sign it, the money eventually disappears from your account. Since there are differences in the legalities of check and ACH processing, though, businesses are required to disclose that they convert checks to ACH. The main difference, in practice, is that ACH transactions tend to clear more quickly than checks. That does cause occasional problems for consumers who are "kiting," writing checks that they do not yet have the money to cover, since they may be counting on the slower process of exchanging slips of paper. In our modern world, traditional processing of checks has been completely eliminated in favor of image-based processing, which is something like ACH conversion built into the check clearing process itself. That means that the actual difference in processing time between ACH and checks is no longer as significant (although the availability of same-day ACH potentially complicates this, I do not believe that NACHA rules allow check conversions to be opted in for same-day clearing). The whole story of check conversion has become mostly a forgotten detail of the beautiful tapestry of transaction processing.

Naturally, TeleCheck integrated ACH conversion into their product. Many businesses now handle checks via payment terminals that perform a TeleCheck authorization and ACH conversion in one step, all facilitated by TeleCheck for a fee that is a bit lower than an equivalent payment card transaction. The function of writing TeleCheck authorization numbers is integrated into the slip printer, which used to endorse checks but now decorates them with ACH conversion details.

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In 2019, First Data was acquired by financial technology giant Fiserv. Fiserv continues to operate TeleCheck to this day, but with ACH conversion now a commodity service and retail of personal checks so standard that we are forgetting about it, TeleCheck has started to look less like an interesting technology company and more like every other credit bureau.

Here's one of the reasons I find TeleCheck so interesting: search for them. I mean, just type it into Google or whatever. What do you see?

A very minimal corporate website, curiously at "getassistance.telecheck.com" (the bare "telecheck.com" redirects to the subdomain as well), with zero information except for law enforcement contact info, a form to look up declined checks, and a set of mandatory regulatory notices. "Victims of Human Trafficking" is a top-level navigation item, peeking out from above the hero banner of typing hands.

TeleCheck is now a ghost, a specter of financial technology past. Baer's 1980s predictions about EFT not cutting into TeleCheck's business fared well only if you ignore the closely related phenomenon of credit card networks. Nationwide, check volume, especially at retail, has collapsed to almost nothing. Fiserv continues to operate TeleCheck as, essentially, a legacy cash cow. They don't market the service at all, and maintain only the brand presence that is legally mandated of credit bureaus.

TeleCheck has a twisting, confusing corporate history, and besides Flagg's larger-than-life ambitions, credit reporting and debt collection are the reasons why. Consumer credit bureaus started to get a bad rap in the 1960s and have never recovered, they must be among the most hated brands in America today. Debt collectors have never had many friends. TeleCheck is, in various ways, both of those things, and they are now more important functions than technicalities of handling checks.

TeleCheck has been the target of dozens of lawsuits under the Fair Credit Reporting Act. To be fair, I don't think that they're worse than usual in this regard. One of the major implications of the FCRA is that credit bureaus can be liable for having incorrect information about consumers, but prior to the passage of the FCRA most credit bureaus were, shall we say, fast and loose about details.

Let's consider an example, of TeleCheck's practice of linked identities. If a person is writing bad checks serially, they will probably not write bad checks from the same account every time. So, as part of the "30 million facts" that TeleCheck's 1980s ads claimed their computers contained, TeleCheck saved relationships between identifiers. If you presented a driver's license and a check from one account, and then a month later at another store presented a driver's license and a check from a different account, TeleCheck permanently recorded the association between all three.

Say the first check bounced. If someone else, months later, at a different store, presented a check from the second account, TeleCheck would decline it. Why? Because they followed the links, from the second bank account to your driver's license to the first account. We might recognize this as taint analysis, and TeleCheck would follow connections through multiple steps until a bad check written by one person could result in "Code 4" declines of checks on different accounts by different people. To say that this was controversial with affected consumers understates the problems, and the way that account linking worked (especially between people of whom TeleCheck otherwise had no evidence of a relationship) became a legal morass. Several of TeleCheck's franchises seem to have left the TeleCheck brand in an effort to manage their risk, especially considering state-specific regulations on credit reporting.

As another way to manage regulatory complexity and liability, TeleCheck spun out its debt collection function into an independent company (although also owned by First Data) called TRS. Or TRS Recovery Services. Here's the thing, I am 90% sure that TRS stands for TeleCheck Recovery Services, but their own website says "TRS Recovery Services (TRS)", which would imply TeleCheck Recovery Services Recovery Services. I think the intent of the whole thing was to divorce the TRS brand from TeleCheck for reputational reasons (consider TRS has a totally different logo), which lead to some "TRS doesn't stand for anything" nonsense. TRS has a website that is almost but not quite identical to TeleCheck, with mandatory regulatory notices only, and they are universally hated as the people that hound you for life over a bounced check at Walmart.

Within the story of TeleCheck we see the full arc of payments technology: 1960s idealism at a new world in which everyone's checks are welcome, 2020s cynicism with an ailing conglomerate interested mostly in not losing lawsuits. TeleCheck is completely unexciting, the cartoon opposite of innovation, but it is very much still with it. Did you know that you can pay at amazon.com via direct ACH withdrawal from your checking account? Mass retailers are still surprisingly likely to accept checks as payment, and they are still, for the most part, doing that via TeleCheck. Even small businesses don't have to miss out: Fiserv also owns Clover, and Clover integrates TeleCheck electronic acceptance.

Deep inside Amazon's help system, under Payment Issues, an article explains how to "Correct a Failed Checking Account Authorization." Besides making sure you typed your account number correctly, the advice is: Call TRS Recovery Solutions. Sometime, somewhere, you must have written a bad check. A nationwide network of computers took note. Honolulu businessmen hobnobbed at a Boy Scout council meeting. TeleCheck took phone calls, McDonnell-Douglas forever changed Boeing, Harry Flagg went on to running MLMs. "Many Hawaii organizations currently are buying time on comparable computer facilities on the Mainland," Flagg said, when they bought the CDC 3100, the first in Hawaii. "Our installation will save them time and money." It might find them a date, too. The Nai'a explores the ocean, two small business colleges fold, two companies from Hawaii make competing claims about an obscure part of history. You're at WalMart, the total is $2, and the cashier is saying something about "Code 4." These things are all connected. They are all connected by Tymnet.