As Check 21 is set to take effect this year, banks are readying their returns processing for an increasingly electronic age. Aiming to make the payments system more electronic, and thus faster, Check 21 goes into effect in October and will allow banks to use a substitute check to process transactions electronically in areas such as returned checks.
Check 21 will impact banks' returned-check processing so that "substitute checks can be used to process a returned-check item, so they do not have to convert it to an ACH debit," says Stessa Cohen, a New York-based financial services and retail banking analyst at research and consulting firm Gartner (Stamford, Conn.). Banks will have the option to convert the return check to ACH debit or process the return using a paper check or substitute check, she adds.
Moving images of returned checks electronically means "dramatic" savings for banks, Cohen says, though she declines to speculate on how much. Banks already profit from returned checks, she says: "If it is costing them a few dollars to process the check, and [if] they charge retail customers $25 or $35, they are making some money off of it."
But Cohen does not expect banks to lower their return-check fees. Many must buy new equipment to deal with substitute checks, she says, at the same time as Americans shift more toward using debit cards and credit cards for payments. "With the declining number of checks, they are processing smaller numbers of checks on new equipment," she says. "It might save money in the long term, but that will not trickle down to the consumer as quickly. What will really impact costs is [when] they can be more proactive in the check-fraud area."
That means catching fraudulent check writers at the point of sale, with the help of new technology from vendors such as Minneapolis-based Solutran Customized Payment Solutions, whose competitors include US Dataworks (Houston), and CheckFree Corp. (Atlanta). "Solutran provides fraud-pattern analysis," Cohen says. "If someone writes one or two bad checks during a day, the retailer can notify the rest of its branches that the person is writing bad checks. That information can be electronically disseminated," she explains. "Will retailers pay more money to do that in real time? Yes."
U.S. Bank Gets a New Image
Minneapolis-based U.S. Bank (parent company U.S. Bancorp has about $189 billion in assets) has a broader project in the works to launch a new check-conversion and image-deposit service, says Veronica Correa-Janssen, senior vice president and manager of corporate and commercial treasury management product development at U.S. Bank. The bank's new system for check returns falls under that umbrella. "The goal," she says, "is to make returned-items processing seamless for customers migrating from paper to electronic."
U.S. Bank spent two months evaluating vendors, according to Correa-Janssen. Rather than buying software, U.S. Bank picked Solutran - which provides treasury management solutions to large corporations processing high-volume, low-value transactions, according to the vendor - as its application service provider (ASP) for the returns services.
"No one had such a robust solution on the returns side as Solutran. They are one of the pioneers of this business," Correa-Janssen says. "They are operating the product and we are labeling it U.S. Bank," she explains. The bank was still testing the new technology in late March.
"Our customers are going to see one returns-processing solution that encompasses paper and electronic returns," Correa-Janssen says. Solutran also offers extras like collections services and detailed reports. "It is the entire returns-management package in one suite," she adds.
U.S. Bank's enhanced returns system should be up and running by the third quarter of 2004, Correa-Janssen says. The typical customers utilizing it will be big remittance processors and large consumer-based billing companies in industries such as utilities, insurance and telecommunications, she adds.
"They will be able to accelerate the items they receive. Electronic items travel faster," Correa-Janssen says. "And the information they are provided [with] will be much more robust."