Solutran SOLUTIONS Newsletter: Tomorrow Taking Shape: A Check 21 Update

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Summer 2004

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Tomorrow Taking Shape: A Check 21 Update

The implementation date for the Check 21 legislation – October 28, 2004 – draws ever closer. The basic implications of the law are that a substitute check will have the same legal equivalence as the original. But we see the law as a catalyst for changing the way checks are processed. Indeed, expectations for image exchange to replace the need for paper, whether in its original form or as a substitute, are high.
While the numbers of articles on Check 21 have been voluminous and the anticipation of the legislation's benefits unprecedented, much work remains to be done in the industry. Several years of development will pass before Check 21 fully matures and provides a compelling ROI on clearing high volumes of forward items.

Solutran's Involvement and Update

We've begun production on substitute check creation in our Minneapolis processing center for a top 10 bank. Over the past seven years, we have been printing check images for our clients to facilitate the collection process. With minor system and process modifications, we were able to create substitute checks. As part of a product extension strategy, we are developing the capability to print substitute checks in multiple locations.

What Is Back Office Conversion and Will It Work?

Taking the Admin Out of Your Returns - Introducing MICRefine™

Spring 2004
Reconciling ARC with Check 21

Fall 2003
Check 21 Becomes Law, Invites
Big Questions

We are also actively engaged in upgrading our software to manage inbound substitute check processing and image exchange. Solutran will begin a series of pilots this summer, subject to the availability of software and trading partners. We will be upgrading our internal software to support image exchange and trading partners have indicated that they will be enabled in the September timeframe. Discussions are underway with the Federal Reserve, Fiserv (which processes for 10,000 banks), and many of the top 10 banks. We anticipate several benefits with image exchange, including an expected 2-3 day improvement in the time it takes for us to receive a return item, resulting in:

Faster negative file updates

Better ability to stop runners

Improved funds flow

Improvement in collection rates

Impact on Returns Consolidations and RCK

It is critical that the integrity of the Returns Consolidation and RCK processes be maintained as the industry migrates to substitute checks and image exchange. It is time to remind your depository banks about your interests. Soon, you will receive a draft of a letter that we will ask our Returns Consolidation clients to send to their depository banks. The communication will cover three topics:

Process integrity - Instruct the depository bank that the returns consolidation relationship they have in place is critical in a post-Check 21 world, as the consolidation of returns to one location provides a host of benefits.

Requalification instructions - post-Check 21 - Should the bank receive any substitute checks from a paying bank, they can either strip them and place a 2 in position 44 (as they do today with the original checks), or create a new substitute check that carries the return bank's (Solutran) Routing and Transit Number and a 5 in position 44.

Image exchange - Your return bank (Solutran) will be able to accept return image exchange files in lieu of paper. We will invite the banks to contact us to establish a direct-send image exchange relationship.

In order to maintain these return management services, it is imperative for you to proactively communicate to your depository banks sooner rather than later.

Image Quality

Early in the year, Solutran conducted an image quality study to determine the impact to data entry quality from converting a gray scale image to a black and white image (a process known as transcoding). The results we published indicated a 35-50% degradation in our ability to capture critical information off a check for our clients. This study showed that for those converting banks pulling in a gray scale image and attempting to convert it to black and white, data entry quality would certainly suffer.
Solutran recently elected to take the study a step further and look at the other end of the spectrum. We questioned the impact to data entry quality if we captured the original as black and white. The results were encouraging - we experienced a degradation of only 0.5% - 3.0% in data entry quality.
With the Federal Reserve fully endorsing a TIFF-formatted black and white check image standard, we now recognize that most checks rendered as a substitute check or that go through an image-exchange process will now appear as black and white images. Clients who use our SOAR reporting platform will begin to see a mixture of black and white and gray scale images online come November 2004. Trust that the images we capture internally will continue to be JPEG gray scale and that significant efforts are being put forth to minimize the impact to our clients.
What is image quality? Some key industry standards groups, of which Solutran is a participant, are working to answer this question. The groups, including the Financial Services Technology Consortium and Accredited Standards Committee X9, along with banks and vendors, are defining attributes of image quality which may include such things as legality, usability, archival and security, all organized into some hierarchy which can be used to measure the quality of an image. In our role as a participant in this process, Solutran is working to represent your interests to the industry players.