[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. – EMc]
Check 21 Update
Speaker from the Federal Reserve was unavailable at the last minute so there were two stand—in panelists and a lively open discussion moderated by Mark Brousseau, of Brousseau & Associates.
Wally Vogel, Creditron
Q – where are customers going with remittance solutions/lockbox processing?
End users that are implementing now are going 100% Check 21. Of legacy sites, only 5% have converted from to Check 21 (approx 200 legacy sites). Just as developing nations are going straight to cell phones, and skipping landline technology.
On a wider basis, Check 21 appeals to companies with branch offices across the country, and those with a focus on compliance/control. Keying and audit centralized.
Lockbox – biggest opportunity – is to capture small number of payments that are received at corporate office and integrating with lockbox workflow.
Q – how are companies building the business case for Check 21?
Traditionally three options: In house manual, automate in house, lockbox. With Check 21 you have to automate either in-house or go to lockbox. Movement/motivation take advantage of Check 21 and avoid trip to the bank.
Change in momentum vs. we’ve always done it this way, it’s the devil we know
In Canada – check volumes dropped off drastically. < 40% of payments via check. Yet businesses have increasing interest in lockbox processing.
Electronic processing highlights inefficiency of manual workflow.
Q – demand for least cost routing?
Offer, small number of customers opt for it. Other cases where bank makes determination for them. Most interested in paper float reduction.
Nancy Gessman, CDS Global
Broad range of industries, independent of depository bank. Send image and MICR to bank to make determination re: least cost routing: ARC, Image, IRD. More momentum in some industries than others. Biggest push back occurs where client more market driven and fear that opt-out will scare customers. Treasury is pushing for it, marketing is resistant. Use Check 21 without ARC notification requirement. Started offering Check 21 in 2004. Renewed interest now. Consumers not as concerned as originally thought.
Did not overbuild opt-out capability. Very little opt out (ARC). Were very concerned about image quality – debating using software. But determined not much of an issue. Using images in house and notice right away when there is an issue.
Q what is the biz case for your customers?
Trying to manage bank fee structures in order to reduce over all costs; float considrations; need banking relationship where there may not be a branch.
Comment: What about IRDs? Much larger volume of IRDs than anticipated in business case – assume the worst.
Q – Any data on fraud associated from remote capture?
Small biz do not have controls in place. Unclear on whether or not to destroy checks and when. Bankers told by lawyers to not give specific advice on how long to retain checks. Range of 60-90 days. Some businesses destroy almost immediately. Enormous amount of risk.
[per Wachovia] Across the board (small biz to fortune 100) Check 21 document retention is not in a safe location. Not monitored or managed in a controlled process. Fraud activity is just starting – fraudsters are learning to take advantage of Check 21. It will get bad before it gets better. Need better guidance from Fed on how to address.
Image quality – both inbound and outbound? Come along way.
IRD cost coming down (handling in house vs. utilizing fed) end-game is ACH not IRD.
National image exchange organizations. Grandiose ambitions at first. Many institutions doing image exchange via intermediary, some direct exchange. Steadily increasing number of image end-points.
Not all institutions are capable of handling inbound images (need to build biz case, work with vendors to find cost effective solutions). Lower image pricing and lower IRD processing costs over time
Q from All State Insurance. 80% ARC – ACH is a lot cheaper than image exchange and a whole lot cheaper than paper. But can’t come up with a business case for remaining 20%. How can I handle them? Feel that bank isn’t coming to customers with solutions. Struggling to cost-justify remaining item processing.
A: Bank should partner with you in building business case. We [Wachovia] are a major ARC player. Residual non-ARC items must be included in total solution. Send whole file to bank, close internal processing. Bank will process: 80% ARC, remaining 20% either image or IRD. Eliminate non-standard process, eliminate courier expenses, eliminate returns, eliminate process risks – can’t just include item cost comparison in business case. Operational changes will demonstrate cost benefit. Reduce $35 / trx adjustment charge (80% reduction in adjustments in image world). Same day money availability. Plus reputational risk if courier loses checks, etc.
End point analysis – what can be cleared image, what can be cleared ARC. What is left for IRD – take into account in determining business case. Provide end point analysis data to all of the banks you request an RFP from.
Window of checks that are electronically clearing is ramping up. Huge increase in number of items clearing electronically all the time. Have end point analysis repeated.
Fraud anecdote: according to Philadelphia FBI an original check is worth $20 on street, $5 for copy. Websites provide instructions on how to take advantage of remote deposit capture – cottage industry on how-to fraud.
Large biller with 1-2 banks, not really concerned about least cost routing. More important ARC vs Check 21. Combination of two processes.
Citicorp – image clearing is critical for lockbox. But many banks still not prepared for image cash letter. Preoccupied with Day 2 and route ARC/ACH transactions
Fidelity – a lot of customers are FIs. Virtual deposit – remittance to IP, but in form for image cash letters. Some demand for distributed capture into lockbox (over the counter payments at utility’s customer service centers). Image quality not as much an issue (handled for image statements, etc. no real special handling for Check 21)
Banks: product capability today – turn key for remittance processing. We’ll figure it out. ARC opt-out, too.
Question from bank to billers: For in-house lockbox, how do you build business case to outsource? Clearing costs, volumes? A: need to work with treasury department. Pricing and float are key decision criteria. Not sure our corporate wants to hand over our ARC opt-out file. Perceived security issue.
CDS Global: send whole file (images and data) to banks. They determine least cost routing. In some cases, bank had opt-out capability. Or CDS has opt-out capability added to image lockbox solution. Most clients have decided to have bank manage opt-outs.
Verizon – early and large adopter of ARC. Starting next year – image cash letter. Decision will be made by treasury. Determined largely by price. Have in-house solution today.