Presented by Jim Mills VP Business Development
description
Transcript of Presented by Jim Mills VP Business Development
What Every Utility Should Know
About Check 21
Presented byJim Mills
VP Business Development
Utility Payment Conference
Check 21
• What is Check 21?
• How does it work?
• Check 21 versus ACH
• Benefits of Check 21
• Getting started
Consumer Payment Survey
• Cash is the most widely used payment method for retail transactions
• Checks are still the most widely used method for Bill Payments
• Security and Ease of Use are the most common concerns of payment types
• 91% of Consumers have a checking account
Source: 2008 Survey of Consumer Payment Choices from the Federal Reserve Bank of Boston
Distribution for Non-Cash Payments
• Debit Card transactions now exceed Credit Cards• In 2006 30.6Billion checks were written & valued at
$41.7 Trillion• Return Checks Represent .05%• 40% of Bank Clearings Occurred via Electronic Check
Aren’t Checks Going Away?
“One-third of all non-cash US payments are made by paper checks.”
“Checks are still the most popular form of payment used by consumers to
pay bills”
“Businesses pay 74%
of their B2B payments
by check.”
Why was Check 21 Created?
– Over 30 billion checks are written per year in US
– September 11, 2001– Planes were grounded– Checks could not clear – $47B in Fed holdover
To Reduce Dependency on Physical Checks
The Check-21 Act’s Purpose
“Check Clearing for the 21st Century Act” or “Check-21 Act”PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1177 Public Law 108–100 108th Congress
“To facilitate check truncation by authorizing substitute checks, to
foster innovation in the check collection system without mandating
receipt of checks in electronic form, and to improve the overall
efficiency of the Nation’s payments system, and for other
purposes.”
“Old” Paper Process
Business receives checks
Paper checks are delivered to the bank
Paying bank
Collecting bank
Federal Reserve
Courier to FED
Check 21 Process
Business scans incoming checks
Check images transmitted to the bank
Paying bank
Collecting bank
Federal Reserve
Check images transmitted to bank
Images transmitted
to FED
Substitute checks, if required
10
Check 21 Has Exploded#
Item
s in
Mill
ions
Source: Federal Reserve, Viewpointe, The Clearing House and local / regional exchanges
Check Images
58 Million Check Images per Day
What is Check-21?
• Check-21 law Governs use of “Substitute Checks”• The Check Clearing for the 21st Century Act (Check-
21) was:– Introduced to Congress by Chairman Greenspan
on December 21, 2001, and enacted on October 28, 2004
• Other names that are similar but confused with the Check-21 Act: – Image Cash Letter– X.937 (ANSI X.9.100-180)– Image Exchange (Image Cash Letter)– Electronic Check (e-Check)– Check Conversion– Check Image
Check-21 Enacted
• Substitute Check standards for legal equivalence to the Original Check
• Mandated that parties cannot refuse a substitute check but parties are not mandated to create a substitute check
• All checks are eligible except foreign checks
• Provided warranties and indemnifications
• Expedited re-credit features (External Processing Codes in position 44)
– 4 = substitute check
– 5 = qualified return substitute check
Substitute Check (Image Replacement Document)
Contains an Image (Front/Back ) of Original Check
Contains Original MICR Information
This is a Legal Copy of your check, You can use it the same way you would use the original check.
“4” in position 442D Barcode Optional Security Feature
Image Quality Assessment & Usability
(IQUA)Too Light Oversized
Too Dark Undersized
Torn or folded corners Has a piggyback document
Torn or folded edges Excess spot noise
Horizontal Streaks Frame error detection
Blow the minimum size Rear image mismatched
Above the maximum size Strip Detected
Excess skew Upside down
ACH TRANSACTION TYPES
• CCD - Cash Concentration and Distribution
• PPD - Prearranged Payment and Deposit
• ARC - Accounts Receivable Entry
• POP - Point of Purchase
• BOC - Back Office Conversion
• RCK - Re-presented Check Entry
• Tel - Telephone-Initiated Entry
• Web - Internet-Initiated Entry
Check Conversion and Check-21 ComparisonARC POP BOC Check-21
USE Check Payment by mail or lockbox
In Person Payment at Point of Sale
In person payment converted in back office
Substitute Check permitting truncation and electronic clearing
Eligibility Checks with non aux on-us
Checks with non aux on-us
Checks with non aux on-us
All US checks
Dollar Limits < $25,000 < $25,000 < $25,000 No Limit
Authorization/ Notification
Notification and Opt-out Option
Authorization Signature at POS
Notification POS sign, handout, receipt
None
Check Conversion and Check-21 Comparison
ARC POP BOC Check-21
Original Check Requirements
Mailed or Drop box
Voided at POS Destroyed within 14 days
None
Individual Opt-out
Yes- must give option
Yes- must give option
Yes- must give option
None
Typical Clearing Times
Next Day or Same Day
Next Day or Same Day
Next Day or Same Day
Next Day or Same Day
Typical Return Item Notification Times
2 days 2 days 2 days 2 days
Dispute Timeframes
60 days 60 days 60 days 45 days from Statement
Pros’ and Con’s Check-21 vs. Paper Check Handling
Pros Cons
Reduced Labor Cost to Process
Customer Gets a Check Image Back and Not the Original Check
Eliminate or Reduce Courier Fees
Small Risk of Double Posting or Poor Image Quality
Reduced Bank Fees The Need for Archived Images
Improved DSO - Potential For Intraday Posting
Necessitates Shredding (Destroying) Checks
Expedited Returns
Less Capital Expense for Processing Equipment
Faster, Cheaper, Better – No Brainer
Pros’ and Con’s Check-21 cont…
Pros Cons
Check Are Widely Understood
Paper Handling is Expensive
Document Contains Rich Information
In the Days of Float: Knowing the Funds Availability Schedules
Widely Accepted Checks re More Easily Counterfited
90% of Checks Cleared with Check-21
Variations in X.937 Interface Standards
Opportunity for Same Day Settlement
Check Law Requires 7 Years Image Storage
No Opt-Out Requirements
Unlimited Dollar Amount
Depending Upon Your Bank Check-21 Can Cost Less per Transaction and Bank Fees May Be Lower
Pros’ and Con’s ACH Check Conversion
Pros Cons
Predictable Next Day Settlement for Debits
Complicated Regulations
Wide Acceptance Among Financial Institutions
Strict Rules and Regulations
More Secure Against Fraud Than a Check
ODFI Required for Origination and Detailed Contractual Agreements
Low Opt-Out Rates $25,000 Limit and No Business Checks
Image Retention Only 2 Years
Can be Confusing for End Customers, Limited Detail on Bank Statements
Benefits of Check-21
• Eliminate daily trips to the bank
• Faster funds availability• Later cutoff times • Reduce errors and
deposit prep time• Identify fraud sooner• Eliminate accounts at
multiple banks by consolidating electronically
• Consolidate deposits from multiple locations
Getting Started
(4) Update A/R
(3) Send files to bank
(2) Scan using Check 21 software & scanner
(1) Receive payments
Distributed Environment
Central Office
Deposits from multiple sites are consolidated at the Central Office
A single ICL file is sent to the bank
THANK YOU
REFERENCES
References • Argento, M. D., Stanton, J. R., Bachelder, E. L., & Stewart, D. C. (2007, December). The 2007
Federal Reserve Payment Study. Federal Reserve Bank of Boston.
• Check Clearing for the 21st Century Act, Public Law 108-100 117 Stat. 1177 U.S.C. § H.R. 1474 (Oct 28, 2003).
• The Continuous progress of Check-21-enabled Services. (2010, July). Retrieved from Federal Reserve Bank of Atlanta website: http://www.frbservices.org
• ECCHO. (n.d.). ECCHO [Substitute Checks: Development of Processing and Quality Standards]. Retrieved August 10, 2010, from http://eccho.org/ check21_resource.php
• Foster, K., Meijer, E., Schuh, S., & Zabek, M. (2010, January). The 2008 Survey of Consumer Payment Choices. 2008-2010 Federal Reserve Bank of Boston.
• Johnson, D. (2008, January). Check Conversion and Check-21 Comparison Grid. Ithaca NY: RP Solutions.
• Rasche, C. (2010, May). First Federal weathers CHeck-21 ripple effect on check adjustments (Federal Reserve Bank of Atlanta, Ed.). Retrieved from http://www.frbservices.org/
• RP Solutions. (2009). ExpertRPS (Version 2.04) [Computer software]. Duplicate Check Detection Screenshot, IQUA Screenshot: RP Solutions.
• Sabasteanski, C. (2004, March). Transformation in the Check Industry. FISC Solutions.
• 2002 Electronic Payments Review and Buyers Guide: Vols. Pages 10-21. - Understanding the ACH Network: An ACH Primer. (2002). (Original work published 2002)