Check 21 or Bust?

Despite its importance, the pending Check 21 legislation has not made a significant impact on banks' plans, according to a recent survey conducted by Capco, a financial services consulting and technology firm based in New York.

That's not to say that banks wouldn't take full advantage of the ability to present image replacement documents instead of original checks. But with or without the new law, banks were already planning to enhance their check processing efficiency for reasons related to business, not regulation. Check 21's anticipated passage will simply make certain aspects easier. "Assuming Check 21 passes, you've got a legal framework that says that we can now truncate without any fear of legal repercussions down the road," says Mark Webster, a partner at Capco who co-leads the firm's corporate banking segment.

To assess the market, Capco recently surveyed a cross-section of the top national and regional banks in the U.S. While two-thirds of banks have access to check image archives, most have yet to take full advantage of them.

Statements with check images has been the place where most banks have started. "If you only want to get images for the purpose of statements, you don't have to do it on prime-pass," when the bank first receives and processes each check, says Webster. "You can do it after the fact."

Capturing images on prime-pass has more wide-reaching implications, as it enables banks to "reject" and "repair" items using image, without the need for proof encoders. As a result, item processing could be moved virtually anywhere, onshore or off.

Just under half of the large national banks and one-third of the community banks surveyed were considering prime-pass imaging. Only 25 percent of financial institutions reported that they are considering the use of image for "day two" processing of returned checks and exception items.

Few banks expressed an interest in joining "utilities" for check processing. "There was no interest on the part of the large national banks," says Webster.

That's a stark contrast to how things work outside of the U.S., such as in Canada, where the bulk of checks are processed by Symcor (Toronto), a joint venture of Bank of Montreal, Royal Bank of Canada and TD Bank; and Intria Items (Ontario), a joint venture between Fiserv and CIBC.

Webster speculates that banks' skittishness could stem from the shelf life of most consortia, the unwillingness to give customer information to competitors, or sunk costs in existing check processing operations.

COMING SOON: TELLERS AT THE ATM

If and when these barriers fall, the industry should realize true cost savings.

To illustrate, consider the job of a bank teller. "There's a significant portion of their workday that's spent in balancing out and controlling all the transactions," says Webster.

If image-enabled bank tellers can skip many of these tasks, they might become what might be described as a concierge for super-ATMs, as with the recent approach of Washington Mutual (Seattle, assets: $277 billion). "There's still a teller, but they're putting cash dispensers in at the teller station," says Webster.

Another example is Liberty Bank (Middletown, Conn., $2.2 billion in assets), which recently converted its item processing over to COCC (Avon, Conn.), and also plans to experiment with a check-imaging machine at the teller line.