Check 21 overview
With approximately 42 billion
checks written in the United States each year, financial ins titutions
are embracing check imaging as a way to reduce transportation
costs, processing costs, and fraud risks associated with physically
processing the original checks.
Legislation recently signed into law will simplify
the way in which check clearing is handled in the future, replacing
a cumbersome, expensive system that works well with a simpler,
less expensive approach that works better.
The Check Clearing for the 21st Century Act,
formally known in the House as HR 5414 and informally known as
Check21, aims to facilitate check truncation by allowing banks
to more easily exchange checks electronically through the use
of substitute checks. Other objectives of the measure include
fostering innovation in the check collection system without mandating
receipt of checks in electronic form, and improving the overall
efficiency of the nation's payments system.
Until recently, the law required banks to physically present and
return original checks. After a customer deposited a check with
his or her bank, the bank typically transported the check from
the branch or ATM where it was deposited to a central operations
center. The check was then usually sent to one or more intermediaries
- such as a Reserve Bank or a correspondent bank - or to a clearinghouse
for collection before it was ultimately delivered to the bank
on which it was drawn for payment. During each step of this process,
the check had to be physically shipped to its destination by air
or ground transportation. Private networks such as
EndpointExchange provided a mechanism for transferring checks
electronically between their member banks.
The historic paper-based approach to check handling reached its
limits. There were no further productivity gains to be made using
traditional technologies. Check reader/sorters were unlikely to
be able to move checks any faster without causing physical damage
to the checks. Inefficiencies and high error rates became burdensome
and costly. Check fraud continued to be a growing problem. Meanwhile,
competitive and regulatory pressures were leading banks to make
funds available to depositors sooner.
(Source: Data Financial Corporation's monthly
newsletter; learn more about trends in the banking industry
at Data Financial's
ChekScan is ready to participate in EndpointExchange,
providing the branch capture hardware and software to scan checks,
record the MICR information and provide a high-quality image to
meet the requirements for image retention and replacement images
from an archive.
Check 21 unanswered questions
Check 21 provides no standard formats for image files, data files, and/or image exchange information. Once the various image exchanges
begin transferring images, measures must also be put in place to ensure the security, quality, authenticity, and non-alterability of image transmissions.
Imaging and non-imaging institutions
Check 21 provides the opportunity but not the requirement to use
check images in place of paper checks. Institutions that convert to 100% imaging will still need to be able to work with institutions that do not. And vice versa.
Contact us for more information.