The check clearing for the 21st Century Act, also known as Check 21, is one of the most radical changes to hit the check processing industry in 40 years. On average, financial institutions handle a check 26 times, and returned checks are handled many more times. Through reduced document handling, industry pundits predict check truncation will save financial institutions $2 billion to $3 billion per year. Aside from the industry savings, why did Check 21 pass so quickly through Congress? The average Federal Reserve holdover is several hundred million dollars per day. In the days following September 11, flights and checks were grounded for several days and the Fed holdover was an estimated $47 billion.
The new law will eliminate much of the risk associated with moving billions of checks, such as transportation breakdowns, weather delays, fraud, theft and terrorism. The law is designed to improve the overall efficiency and insure stability of the U.S. payments system. Check 21 will facilitate check truncation by removing paper checks from the clearing and settlement process and by authorizing use of substitute checks.
The law is intended to streamline check collection and return processes. Check 21 insures that both the bank and customer or credit union and member will be in an equivalent legal position, whether or not he receives the original check. Check 21 will present banks and credit unions with a number of other benefits, including faster collection and return of checks; reduced return handling costs and time; branches and ATMs no longer tied geographically to processing centers or courier deadlines; extended deposit cutoff hours; more timely information to customers; reduced volume of paper checks; lower clearing fees; decreased item-processing passes and reduced need readers and sorters; operational savings in infrastructure, paper, storage and courier runs; reduced float for the depositor. Moreover, the law will encourage banks to implement on-line archives for faster check-image access and to expand branch hours because checks aren't tied to courier deadlines.
The law is designed to foster innovation in the check collection system without mandating the following receipt of checks in electronic form; significant operational changes; buying specific technical solutions; recreating operational processes; and agreements between presenting and receiving organizations.
While the law does not mandate certain functions and strategies on the surface, banks and credit unions are now faced with a number of serious choices. They can choose to do little and only accept Image Replacement Documents ven though this process may sound simple, it could prove very expensive.
The law raises many other questions. With declining check volumes, should banks and credit unions keep processing and archiving in-house or should they outsource to a service bureau? Should they pursue a partial outsource strategy and outsource capture while keeping the archive in-house? Should they outsource to a shared utility in the public sector, to the Federal Reserve or to a shared utility in the private sector?
Some vendors will be prepared for Check 21, while others will be well behind the technology curve. Performing the necessary due diligence on check imaging vendors and preparing operationally for Check 21 is imperative, because check truncation and electronic exchange will affect many back-office functions. These areas will be affected the most: branch, ATM and sorter capture; image and quality control; image archive; ECP send and receive; DTA or distributed traffic agent; image exchange balancing; image data correction; image exception processing; image incoming returns; image outgoing returns; transit bulk store; image research and adjustments; image statements; statement preparation; and image replacement documents.
With the advent of the Check Clearing Act, there is a great deal of uncertainty in the market and more financial institutions are strongly considering the outsourcing alternative. Some outsourcers are well positioned to take advantage of this opportunity. Many institutions will decide to outsource, due to questions over technology changes, reduced check volumes and staff reduction. However, there are solid reasons to process in-house as well. Some institutions choose in-house because of the economies of scale associated with high volumes, quality control and customer service..
After careful review, there may be some serious issues with Check 21. While there are a large number of benefits to the law, it does present a number of challenges to banks and credit unions, including:
* With declining check volumes, how will prime pass capture be affected?
* Should a bank purchase or lease a check-imaging sorter?
* How many readers and sorters will a bank need and what should be the speed of each?
* Is it more cost effective to outsource the check capture process, but keep the check image archive in-house?
* Will receiving image replacement documents be a cost-efficient strategy vs. archiving image documents?
* Which firm will print IRDs in a bank's geographic area and how well will it run on the bank's reader and sorter?
* What operational challenges will occur in the branches and back office when coordinating paper checks, coded data and image files?
* What in-house hardware, software and outsourcing companies are truly prepared for Check 21?
* Each check is roughly 26 KB in size: What will be the transmission cost of an electronic check?
* What direct presentment agreements will need to be struck between sending and receiving banks?
* How will the bank handle fraud, double posting and re-credit situations?
* Will a bank need to purchase ATM and branch image-capture devices?
Changes brought about by Check 21 will be a blessing to some banks and a curse to others. The law will reward some vendors with a lion's share of profits, while burying the "also ran" companies. It is essential that financial organizations perform due diligence on industry products and assess what a bank or credit union truly needs in terms of technology.
Greg Schratwieser is president and CEO of consulting firm ICI.
Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.banktechnews.com
Is Check 21 Set to Be A Blessing or a Curse?: Dangers abound. Just check out proposed tech vendors.
The check clearing for the 21st Century Act, also known as Check 21, is one of the most radical changes to hit the check processing industry in 40 years. On average, financial institutions handle a check 26 times, and returned checks are handled many more times. Through reduced document handling, industry pundits predict check truncation will save financial institutions $2 billion to $3 billion per year. Aside from the industry savings, why did Check 21 pass so quickly through Congress? The average Federal Reserve holdover is several hundred million dollars per day. In the days following September 11, flights and checks were grounded for several days and the Fed holdover was an estimated $47 billion.
The new law will eliminate much of the risk associated with moving billions of checks, such as transportation breakdowns, weather delays, fraud, theft and terrorism. The law is designed to improve the overall efficiency and insure stability of the U.S. payments system. Check 21 will facilitate check truncation by removing paper checks from the clearing and settlement process and by authorizing use of substitute checks.
The law is intended to streamline check collection and return processes. Check 21 insures that both the bank and customer or credit union and member will be in an equivalent legal position, whether or not he receives the original check. Check 21 will present banks and credit unions with a number of other benefits, including faster collection and return of checks; reduced return handling costs and time; branches and ATMs no longer tied geographically to processing centers or courier deadlines; extended deposit cutoff hours; more timely information to customers; reduced volume of paper checks; lower clearing fees; decreased item-processing passes and reduced need readers and sorters; operational savings in infrastructure, paper, storage and courier runs; reduced float for the depositor. Moreover, the law will encourage banks to implement on-line archives for faster check-image access and to expand branch hours because checks aren't tied to courier deadlines.
The law is designed to foster innovation in the check collection system without mandating the following receipt of checks in electronic form; significant operational changes; buying specific technical solutions; recreating operational processes; and agreements between presenting and receiving organizations.
While the law does not mandate certain functions and strategies on the surface, banks and credit unions are now faced with a number of serious choices. They can choose to do little and only accept Image Replacement Documents ven though this process may sound simple, it could prove very expensive.
The law raises many other questions. With declining check volumes, should banks and credit unions keep processing and archiving in-house or should they outsource to a service bureau? Should they pursue a partial outsource strategy and outsource capture while keeping the archive in-house? Should they outsource to a shared utility in the public sector, to the Federal Reserve or to a shared utility in the private sector?
Some vendors will be prepared for Check 21, while others will be well behind the technology curve. Performing the necessary due diligence on check imaging vendors and preparing operationally for Check 21 is imperative, because check truncation and electronic exchange will affect many back-office functions. These areas will be affected the most: branch, ATM and sorter capture; image and quality control; image archive; ECP send and receive; DTA or distributed traffic agent; image exchange balancing; image data correction; image exception processing; image incoming returns; image outgoing returns; transit bulk store; image research and adjustments; image statements; statement preparation; and image replacement documents.
With the advent of the Check Clearing Act, there is a great deal of uncertainty in the market and more financial institutions are strongly considering the outsourcing alternative. Some outsourcers are well positioned to take advantage of this opportunity. Many institutions will decide to outsource, due to questions over technology changes, reduced check volumes and staff reduction. However, there are solid reasons to process in-house as well. Some institutions choose in-house because of the economies of scale associated with high volumes, quality control and customer service..
After careful review, there may be some serious issues with Check 21. While there are a large number of benefits to the law, it does present a number of challenges to banks and credit unions, including:
* With declining check volumes, how will prime pass capture be affected?
* Should a bank purchase or lease a check-imaging sorter?
* How many readers and sorters will a bank need and what should be the speed of each?
* Is it more cost effective to outsource the check capture process, but keep the check image archive in-house?
* Will receiving image replacement documents be a cost-efficient strategy vs. archiving image documents?
* Which firm will print IRDs in a bank's geographic area and how well will it run on the bank's reader and sorter?
* What operational challenges will occur in the branches and back office when coordinating paper checks, coded data and image files?
* What in-house hardware, software and outsourcing companies are truly prepared for Check 21?
* Each check is roughly 26 KB in size: What will be the transmission cost of an electronic check?
* What direct presentment agreements will need to be struck between sending and receiving banks?
* How will the bank handle fraud, double posting and re-credit situations?
* Will a bank need to purchase ATM and branch image-capture devices?
Changes brought about by Check 21 will be a blessing to some banks and a curse to others. The law will reward some vendors with a lion's share of profits, while burying the "also ran" companies. It is essential that financial organizations perform due diligence on industry products and assess what a bank or credit union truly needs in terms of technology.
Greg Schratwieser is president and CEO of consulting firm ICI.
Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.banktechnews.com