Measuring Consumer Attitudes Toward Alternative Check Verification Systems

David J. Barnaby, University of Tennessee
John W. Philpot, University of Tennessee
Richard C. Reizenstein, University of Tennessee
ABSTRACT - While the technologies for various electronic funds transfer (EFT) systems are well developed, little attention has been directed toward the study of cons, nor attitudes toward and acceptance of these technologies. In particular, several check verification system (CVS) have bean introduced as an electronic mechanism to verify consumer checks and reduce the number of bad checks accepted by merchants. Since the systems provide unique benefits to different consumer and merchant user groups, an assessment of consumer reaction to CVS alternatives provides insights into consumer check cashing attitudes, activities, and preferences. Multivariate procedures are utilized to yield profiles of specific CVS preference groups.
[ to cite ]:
David J. Barnaby, John W. Philpot, and Richard C. Reizenstein (1981) ,"Measuring Consumer Attitudes Toward Alternative Check Verification Systems", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 71-75.

Advances in Consumer Research Volume 8, 1981      Pages 71-75


David J. Barnaby, University of Tennessee

John W. Philpot, University of Tennessee

Richard C. Reizenstein, University of Tennessee


While the technologies for various electronic funds transfer (EFT) systems are well developed, little attention has been directed toward the study of cons, nor attitudes toward and acceptance of these technologies. In particular, several check verification system (CVS) have bean introduced as an electronic mechanism to verify consumer checks and reduce the number of bad checks accepted by merchants. Since the systems provide unique benefits to different consumer and merchant user groups, an assessment of consumer reaction to CVS alternatives provides insights into consumer check cashing attitudes, activities, and preferences. Multivariate procedures are utilized to yield profiles of specific CVS preference groups.


Relative to other consumer oriented service industries, banking has only recently begun to devote substantive attention to the application of established marketing principles. Certain financial institutions, such as City National Bank of Columbus (Ohio), have emerged as innovators in their use of such practices to develop new market segments and to better serve their existing customers. The banking industry as a whole, however, is only beginning to tap the marketing resources available to them to better assess market reaction to and promote the potential array of consumer services available under the umbrella of Electronic Funds Transfer Systems (White and Woodside 1973).

Historically, the primary thrust in what many banks have perceived as marketing, both overall and with respect to Electronic Funds Transfer Systems (EFTS), has been institutional and product-oriented, rather than market oriented (Mason and Mayer 197&). Bank marketing has historically been narrowly defined, as sales and/or promotion in the rare instances where it has been used, as opposed to the broader strategic approach emerging in other consumer-oriented industries (White and Woodside 1973). This direction is evident in the numerous articles that have appeared in the last few years which discuss the concept of EFTS as well as specific EFTS applications (Automated Teller Machines, Point of Sale Systems, Check Guarantee Systems, etc.). These generally dwell on the advantages and disadvantages of EFTS (more from the financial institution's perspective than that of the consumer or retail merchant), and costs versus benefits with relatively little emphasis on market planning, market acceptance, consumer research, or promotion to the consumer or retail sectors of either the EFTS concept or the potential variety of EFTS services (Benton 1977).

In light of the evident paucity of marketing-oriented consumer research in this field, this study will attempt to apply marketing research and analytical techniques to a specific type of EFTS: check guarantee/verification systems (CVS), systems which identify bad check writers by use of a computerized negative card file accessible via retail in-store terminals. The major objective of this research will be to apply the market segmentation concept to describe and classify potential consumer preferences for two general categories of check verification systems: consumer operated and retail employee operated.


As stated, the preponderance of literature related to consumer attitudes toward and usage of EFTS has focused on the advantages, disadvantages, costs, and benefits of EFTS, various delivery mechanisms, and the variety of services available under the EFT umbrella. Business Week, Fortune, and Harvard Business Review, among the general business periodicals, have featured such articles in recent years ("Electronic Banking: A Retreat from the Cashless Society" 1977, Rose 1977, Benton 1977), in addition to such financially oriented publications as The Banker, Banker's Monthly Magazine, the Journal of Bank Research, and Savings and Loan News (Slush 1977, Nadler 1977, White and Woodside 1973, "You Can Take the 'E' out of EFT" 1977). Moreover, with the experimental implementation of various forms of EFTS services in the banking community, successes and failures are increasingly reported, including the generally favorable experiences of City National Bank of Columbus and the Wilmington Savings Fund Plan as well as the less successful experiment at Glendale Federal Savings and Loan ("Electronic Banking: A Retreat from the Cashless Society" 1977, De Costa 1977).

In contrast to these are articles directed toward the application of marketing to bank services other than EFT (Levy 1973). Some of these studies attempt to apply retail marketing techniques in s segmentation context, generally describing users and nonusers of types of banks or banking services, such as commercial banks (as opposed to savings and loan institutions), bank credit cards in terms of life styles, and overdraft checking in terms of usage rates (Arbeit and Sawyer 1974, Plummer 1971, Morgan 1978). Most of the remaining marketing research in the field tends to emphasize specific kinds of analyses such as determinant attribute analysis and perceptual mapping as segmentation mechanisms (Anderson, Cox, and Fulcher 1976, Gillette and Evans 197&). Marketing-oriented research on specific EFT services has been reported only rarely, with the Vinson and McVandon study of the impact of consumer education on attitudes toward the debit card concept one of the only recent examples in the marketing literature (Vinson and McVandon 1978).


During 1979, a personal interview survey of 325 consumers was conducted by means of a systematic random sample from the City Directory of a medium-sized Southeastern city (population 200,000). The primary objective of this research was to assess consumer familiarity with and attitudes toward the concept of EFTS, as well as specific EFT services; the major thrust of the research, however, was launched toward alternative forms of check guarantee/verification systems (CVS). (Coincidentally, CVS were initially introduced in the community shortly after completion of the study.) Because of respondents' potential unfamiliarity with point of sale/check verification systems (and their variations), focus groups were utilized to get an idea of the level of consumer and retailer knowledge in this field and to pinpoint possible areas for investigation. The check verification systems under study, in many cases, represented entirely new services that would be potentially available in the market areas; hence, the focus groups were followed by extensive personal interviews with respondents over a four-month period to gauge consumer reaction to this new EFT concept.

In order to focus the information collection on the most relevant subset of the sample, i.e., those who write checks outside the home who would be the critical consumer market for check verification systems, two filter questions were posed; Respondents were first asked if they had checking accounts; of chose interviewed, 21% (or 68) did not. Interviews with these individuals were terminated after collection of demographic data. Subjects who did have checking accounts were then queried as to whether they used checks for purposes other than bill paying at home; 20% (or 51) did not, and were eliminated from the remainder of the interview after classificatory information was obtained.

The remaining 206 respondents were first analyzed in comparison with updated census data, adjusted for inflation by use of the Consumer Price Index. This information, provided in Table l, shows an excellent match in the age, income, and marital status categories between the sample and updated Census figures for the SMSA. (In the age category, children under 18 were removed from the Census figures and the remaining totals readjusted, as children did not qualify as potential respondents.) Given the close parallel in most categories between the sample and the Census data, it would seem as if the respondents are potentially representative of the market area under study.




Of the 206 questionnaires from respondents who completed the full forty-minute personal interview, 11 could not be utilized due to missing data; less than half of the remaining 195 had ever heard of point of sale (POS) or check verification systems. In fact, only 2% had ever used a POS terminal. These low percentages correspond to the limited development of electronic funds transfer systems of any type in the relevant market area. Despite this lack of familiarity with EFTS, a majority of respondents were clearly interested in check verification systems that would both aid in the processing of checking payments and speed transactions. Consumers noted that of their total check cashing activities, nearly 45% required some form of check verification procedure. These transactions normally occurred in the following types of retail establishments (in decreasing order of frequency): grocery stores, department stores, drug stores, discount stores, and auto service stores. Given such results indicating a generally low level of awareness, but a strong interest in check verification systems, consumers' attitudes toward specific check cashing activities will be explored in depth in the analyses to follow.

Initial assessment of consumers' attitudes toward check cashing activities were measured by 27 Likert scale items developed from focus group research. While these questions included items that pertained to many aspects of payment for retail goods and services, a number of items were specific to check verification procedures and systems currently employed by merchants. In Table 2, a sampling of these items, representing greatest percentage agreement or disagreement, is shown along with the agreement or disagreement scaled percentage. Generally, the sample "agrees" that bad checks are a problem for retailers and empathizes with merchants regarding this problem. Respondents, however, found charge cards to be more acceptable than checks to merchants and strongly preferred charge card verification systems to present check cashing systems. (From the merchant perspective, a verification system that substantially shifts risk of nonpayment for goods or services to the credit card sponsor is preferable.) Consumers do agree substantially that retailers should cash checks, and should provide an efficient identification procedure that would provide both protection for the merchant and a nonthreatening or embarrassing transaction environment for the consumer. Interestingly, driver's license numbers are assuming an increasingly critical role in this identification procedure.



Table 3 indicates CVS attributes deemed most important by consumers in evaluating alternative systems for check verification. These results depict consumers as stressing the importance of such statue quo factors as price maintenance, account privacy, system reliability, stop payment procedures, "float" availability, and remedies for accidental overdraft. Additionally, such factors as bad debt reduction, faster identification procedures, cashing other than personal checks, and cashing checks for more than the amount of purchase are considered important components of the system.



Prior to testing the relationship between consumer attitudes toward check cashing activities, importance ratings of attributes, and specific check verification systems, factor analyses of the set of 27 attitudinal items and the 29 importance ratings were conducted. Results of both of these analyses were quite lackluster with commonalties and factor loadings being very low; interpretation of the factors proved difficult. Attempts to correlate factors with system preferences proved nonsignificant at the .05 level. These poor results imply, in part, that consumers appeared to display some confusion about CVS systems due, to a great extent, to their unfamiliarity with these systems; as a result, they shoved little consistency in their replies to the items.

As an example, consumers expressed a strong preference for small retailers who knew them and could accept checks without ID; at the same time they reported no resentment of retailers requiring ID. Both items had high positive loadings on one of the attitude factors, yet the first item was positively correlated with the grouping variable and the second item had a negative correlation with the grouping variable. This led to a factor that was practically orthogonal to the grouping variable.

The diffuse nature of the factor analysis, which implies confusion in the minds of consumers about CVS, suggests that subsequent discriminant analysis results would be subject to change, particularly after a public education and information campaign. That is, the real polarization of preferences has yet to occur.

In a further effort to identify those variables related to specific CVS preferences, correlations between the larger predictor sets (attitudes, attribute importance, and demographics) and consumer operated system preferences were obtained. Those items significant at the .05 level (univariate) or better are shown in Table 4 and were selected as candidates for further study. (To preclude spurious correlation, these and subsequent tests were made using the critical value that is appropriate when all predictors are included in the analysis? i.e., F .05 (1,98) = 3.94.) In total, 13 candidates variables survived this correlational screening, 10 of which were equally divided between attitudinal and importance items. Only one item each pertaining to specialty store system usage intentions, friends as a new product information source, and number of children and/or others 15 years or older living at home, comprised the final three candidates. All correlations, as shown in Table 4, were less than .20, reinforcing the relatively weak level of the relationships discovered.



Despite the weak (though significant) nature of the correlations, however, the candidate variables were included as predictors in a multiple discriminant analysis to test the ability of this multivariate function to discriminate between those consumers preferring consumer as opposed to retail employee operated check verification systems. Preference grouping for either the consumer operated check verification system or the retail employee operated check verification system were determined by categorizing preferences for specific CVS alternatives. Scenarios describing the use and function of each alternative were provided to familiarize respondents with each CVS possibility prior to measurement of consumer preferences. First choice preferences served as an indicator of preference for consumer versus employee operated CVS; respondents were grouped accordingly with the great majority (73%) favoring the consumer operated version.

The results of the stepwise MDA shown in Table 5, reveal those predictors which significantly (p = .01) discriminate between consumer and employee operated CVS preference groups. Examination of the results (means and standardized discriminant coefficients) suggests that chose respondents preferring consumer operated check verification systems can be described as: consistently agreeing that retailers should cash personal checks for the amount of purchase, extremely satisfied with the bank handling their checking account, desiring faster than normal identification procedures for check cashing, having few children or others 15 years or older residing in the household, and counting friends as an important new product information source. Correspondingly, those respondents preferring retail employee operated check verification systems agree to a lesser extent that retailers should cash checks for amount of purchase, are less well satisfied with their bank, have a lesser desire for faster check cashing identification procedures, have barely any children or others 15 years or older residing in the household, and do not rely as much on friends as a new product information source.



A further indication of the ability of the discriminant function to statistically classify respondents based on the five significant predictors is found in the hit or miss classification results presented in Table 6. The disproportionate group sizes precluded the traditional hold-out sample analysis to test the classificatory ability of the discriminant function. The jackknife procedure was utilized to test the function, however, with results showing a 75% correct classification rate while chance classification was calculated at 61%.




From reviewing the literature; it seems evident that the cashless/checkless society and electronic funds transfer systems (EFTS) are only in the early stages of market development. The issues and controversy surrounding EFTS has had primarily a financial and product-oriented focus, rather than a marketing-oriented perspective. Some departure from this product orientation, however, can be found in the stances of consumer groups advocating the limited adoption of EFTS because of its potentially negative impact on consumer privacy. Otherwise, EFTS innovations such as check guarantee/verification systems have received relatively little attention in what little marketing-directed financial literature exists, a major omission since transaction volume is a key variable in estimating the potential profitability of such systems, thus emphasizing the importance of marketing techniques to achieve necessary volume levels.

Check verification systems (CVS) unquestionably address a potential need evident in retail transactions. Checks continue to play a key transactional role; consequently, bad checks pose significant problems for both retailers and consumers. CVS is an EFTS alternative which has the potential to dramatically reduce bad check losses, if sufficient retailers and consumers will use such systems to make them profitable to sponsoring banks or business firms.

Since several CVS alternatives exist, research is desirable to gain insight into consumer preferences for specific CVS options and alternatives. The personal interview survey conducted in this study attempted to provide at least a partial response to this issue. Although geographically limited, and thus not generalizable to a national market, the results do provide insight into the differentiating characteristics of two distinct CVS alternative preference segments in a retail market prior the actual introduction of such systems.

Data collected by this research showed that, for the market area under examination, consumers as well as retailers definitely recognized the problems associated with bad checks. Impact on retailer costs and thus prices were understood by a large majority of respondents; the reasons for identification procedures to minimize such expenses were thus comprehended, although disliked due to their inconvenience and time consuming nature, by consumer subjects. Despite such perceived negative aspects of retail check cashing, however, availability of retail check cashing, at least for the amount of purchase, was a highly desired service in retail stores. CVS alternatives were seen as quite attractive to many respondents desiring such check cashing availability, due to the simpler and faster identification procedures inherent in the consumer operated system in particular.

Results of multiple discriminant analysis of preference for consumer versus retail employee operated CVS support several differentiating characteristics of groups favoring each type of alternative, including the greater orientation of those preferring the consumer operated system toward more check cashing and faster identification procedures. In addition, a potentially useful promotional idea for such systems is revealed in the MDA results. The greater reliance on friends as an important new product information source by those respondents favoring consult operated CVS is an important insight for those interested in marketing such techniques. If this CVS method was launched as a new product introduction, apparently word of mouth could play a key role; thus, consideration of ad copy using a representative of friends' dialogue might be effective as a promotional mechanism.

Finally, the MDA results show that those who appear to rely more on credit cards and favor credit card transaction procedures also appear to be more interested in retail employee operated systems which parallel credit card verification procedures. On the other hand, the group favoring the consumer operated CVS seems to rely more on check pay-merit for retail purchases and sees this self-initiated and self-operated system as preferable.


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