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With the
implementation of Check 21 in October 2004, there have been significant
changes in how checks are processed. While these changes are noteworthy,
as of May 2005 they have affected less than 7% of Solutran’s overall
return check volume. These changes have been positive in some aspects
and have created new challenges in others. Whenever you consolidate a
process, both positive and negative impacts to that process are
magnified. That’s exactly what’s occurring in return check consolidation
environments throughout the country.
Check 21 enables
banks, processors, and/or merchants to create a new document called
a substitute check. The substitute check is created from an image of the
actual item. Once the substitute check has been created, according to
X9.100-140 standards, it becomes a new negotiable instrument and can be
used legally just as the original check can be used.
Although Check 21
itself doesn’t speak directly to the settling of checks using image and
data exchange versus the original paper document, it has opened the door
to various participants of the check-clearing network to move forward
with this type of activity. To expect an entire network, which has been
settling checks using traditional paper processing methods for decades,
to prepare and settle items using images and data files overnight is
unrealistic. With the passing of Check 21, an item can now go from being
settled as an image and data file to a substitute check at any point in
the settlement process. With this new negotiable instrument, the
industry has been moving forward, at various levels, with both image
exchange and the creation of substitute checks in traditional processing
environments where applicable. One of the areas is within return item
processing. An extremely positive
impact of Check 21 is a reduction in the time it takes from the date a
check is cashed to the date the check is returned to Solutran. We
generally see original return items in an average of 6.5 business days;
substitute checks received in our operation center are arriving in an
average of 5.6 business days. This represents a nearly 15% reduction in
the amount of time it takes us to receive returned substitute checks
versus original paper. Based on modeling we have done regarding item
processing in a full-blown image exchange environment, we anticipate a
much greater reduction in the time it takes to receive return
information (two to three business days). Not everyone can agree on what
the value of time is related to return items, but everyone can agree
that learning of return items sooner has significant value. |
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Some of the major
challenges with processing substitute checks today include image quality
and the accurate reproduction of the MICR line. In a consolidated
returns environment, there is a significant amount of processing done
based on endorsement information. Should the endorsement become hard to
read or illegible upon the creation of the substitute check, many
downstream processes can be affected. There are two areas to note
specifically. One is the ability to identify to which account the return
item belongs; the second is the ability to do data capturing off the
back of the check. Inability to capture this information can affect
internal processing within the financial institution or merchant
environment.
In many instances,
Solutran is providing updates to our customer’s front-end point of sale
systems via data files. In the event we receive substitute checks where
the MICR lines are not an exact replication of the original document, it
can have a negative impact on this process. Most of the issues we are
seeing in regards to this are related to the actual structure of the
MICR line. In some cases, check numbers that were originally in the
serial field are being truncated and placed in the trancode field. Other
issues relate to re-qualified items carrying just a routing number and
dollar amount versus the entire MICR line.
In summary, Solutran,
and therefore our clients, are beginning to see the benefits of Check
21. These benefits stem from a reduction in the time it takes our
clients to see their return items. On the other hand, there are
challenges as well. These challenges consist of the quality of the
actual substitute check documents being created. Solutran is actively
involved in various groups related to the adoption of standards related
to substitute checks and image exchange. As we continue to learn
firsthand through our processing, we will bring this knowledge to these
groups and other parties involved in the creation of the erroneous
substitute checks. At the end of the day, Solutran believes the future
of processing checks is through image exchange and we are committed to
making that future a reality. |
