NEEDHAM, Mass. - According to new research that charts the adoption of the Check Clearing for the 21st Century Act, 2007 is expected to be another significant year in the ongoing "electronification" of paper checks.
Boston-based TowerGroup say it expects monthly check-image-exchange volume to surpass paper-check-presentment volume by the end of 2007, making it the dominant method of check presentment by 2008
Check 21, which took effect in late 2004, allows banks to use substitute checks or image replacement documents. Substitute checks are printed documents containing images of original checks with data added for identification. Depository banks capture an image of a check, transmit the image to a site near the paying bank and then have the image printed and delivered for presentment to the paying bank - offering faster funds collection from non-local checks, reducing transportation costs, and improving reliability.
Although Check 21 did not provide for the electronic exchange of check images, banks can agree to exchange electronic image-based cash letters for check presentment. Exchanging images of paid checks further reduces a bank's operational costs and speeds the check presentment process.
"Most U.S. banks have now implemented the software and processes to participate in check-image exchange," said Robert Hunt, a research director for TowerGroup's Retail Banking practice and author of the research. "The largest banks have completed limited-volume processing and are now ramping up their image exchange-transaction volume. Although factors such as ACH check conversion and electronic-bill-payment growth will impact the number of checks presented in 2008-09, it is clear that by 2009 paper-check presentment volume will be minimal."
Research highlights
Following the introduction of Check 21, U.S. banks concentrated their efforts on reducing check float by using substitute checks and introducing remote-deposit products. The use of substitute checks for presentment grew throughout 2005 as financial institutions added check-image capture and image cash-letter capabilities.
Although image exchange networks were available to facilitate image-based electronic presentments, a number of factors resulted in the bulk of image cash-letters being converted to substitute checks, including the need within many FIs for new image-based exception item-processing software to support image presentments; a difference in needs and expectations between consumer and commercial accounts; and a lack of definition around the legal liabilities and standards for check image exchange - a task overseen by the Electronic Check Clearing Association, which developed the rules and check-image standards for member banks.
During 2006, large and mid-tier FIs put the software and processes needed to receive image cash letters in place. Those FIs have generally increased the volume of incoming electronic cash-letters.
"We see 2007 as the year of image exchange," Hunt said. "The growth of image-exchange volume will accelerate throughout 2007 as more banks agree to receive image cash-letters and those already receiving electronic presentments further increase their volume of incoming images. Exchange volume should exceed conventional check-presentation volume in the fourth quarter of the year."
