Check 21 overview. Check imaging. Check truncation.

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.

Historic approach

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.

Limitations

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 website.

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.