Check 21: Evolution, Not Revolution

A year after its passage, Check 21 is not quite the revolutionary catalyst Congress anticipated. But it still holds promise to free the banking industry from the tyranny of paper-based processing.

It has been little more than a year since the Check Clearing for the 21st Century Act, better known as Check 21, was passed by Congress. Hailed by legislators as ushering in a new era of banking, it seems the reality is a bit less lofty than they anticipated -- so far, at least. But, Rome wasn't built in a day, and bringing any kind of change to a relatively efficient payments system that has remained fairly unaltered for the past 50 years or so won't happen overnight either. >>

Despite the plodding progress, most experts agree that the financial services industry is on the right track toward fully digitizing the check-clearing process. "The banks had one idea [about Check 21] and Congress had another," says Tom Meiman, vice president of global cash management at Pittsburgh-based Mellon Financial ($738 billion in assets). "But the banks are doing as much or more than anyone thought they would. Any change in the payments systems happens at a tremendously slow pace."

Stuart Williams, manager of payment services with Atlanta-based financial e-commerce services provider CheckFree, suggests that the change in check processing should be viewed as a long-term progression. "There's a realization that last October [when Check 21 was passed] hearkened a major shift in the payments industry," Williams explains. "But the process has taken on an evolutionary track rather than a revolutionary track."

This evolution "will be more in terms of refinement and efficiency," says Paul Danola, president and COO of Metavante Financial Solutions (Milwaukee), which owns the Endpoint Exchange Network. "We're still early in the exchange game. There are processes and technologies to refine, but it's nothing revolutionary. The technology is there. The only thing that was missing was the exchange element."

CheckFree's Williams has a similar view. Although image capture technology has been in existence for some time, banks had difficulty justifying its use, he asserts. "In reality, the legislation allowed use of technology that wasn't commonly deployed across network endpoints," Williams explains. "[Check 21] gave banks greater justification to invest in technology that previously didn't present much ROI. Now, we do have a reason to offer image capability," he adds, noting, "We're not talking about new rocket science here."

Alenka Grelish, manager of Boston-based Celent's banking practice, stresses, however, that becoming fully image-enabled requires a hefty investment. "This adds up to a couple billion dollars," she notes. "But it's something banks have to do because this is where things are going."

Naturally, the enablement process will vary from bank to bank, observes Lee Crocker, senior vice president of Atlanta-based SunTrust Bank ($172 billion in assets). "[Implementation of imaging] is going to be a little different for every institution based on what they've done before Check 21," he says. "The technologies around the check processing itself -- the movement and truncation of paper, more STP workflow concepts in this space -- are evolving like the process and the systems."

Still, at least for the major banks, the rudimentary technologies already are in place, according to Richard Winston, a senior executive with Chicago-based Accenture. "If you asked me about this two years ago, I'd have said there was a lot of investment in cameras, image capture and Day 2 processing," he says. "But the large banks, at least, are pretty much done with this now."