Just
six months into the Check 21 era, banks are developing remote image capture
services that will enable business clients to scan checks at their store
or office locations, transmit the check images to the bank for deposit
and then rely on the bank to select the appropriate clearing channel—either
substitute check, image exchange or conversion to an Automated Clearing
House (ACH) payment.
This concept of the depository bank acting as a check processing "decision
gateway" is sometimes known as "dynamic clearing."
Dynamic clearing isn't new. Banks have been exchanging and clearing
check images via Electronic Check Presentment (ECP) for a number of years,
although not always for final payment. However, Check 21 and the emergence
of remote image capture services are taking the concept to a new level.
Check 21 and Image Exchange
Effective in late October 2004, the Check 21 law made specially formatted
paper copies of check images called "substitute checks"—also
commonly referred to as "image replacement documents"—the
legal equivalent of the original paper checks for processing purposes.
In other words, rather than physically transporting a check to the
paying bank, a depository bank can transmit the check's image
and have it printed out as a substitute check for processing and settlement
by the paying bank. Electronic delivery of checks eliminates transportation
costs and reduces the time to settlement.
Ultimately, Check 21 aims to move the banking industry toward all-electronic
processing in which substitute checks are unnecessary; banks would simply
share and process check images instead of paper items. When "image
exchange" becomes a more common industry practice, businesses will
benefit from more efficient and timely access to payment information,
as well as a safer and more reliable payment system. You can also expect
banks to share savings resulting from the new operational efficiencies.
Banks, however, are adopting image exchange at a guarded pace. "We
anticipate that 2005 will be a year of product development and transition
to check electronification," says Andrew Sandiford, Director and
Head of US Dollar Checks at Deutsche Bank. "We expect more deployment
of image exchange services beyond 2005."
Remote Image Capture
One bank service that isn't waiting for widespread adoption of
image exchange is remote image capture. By allowing banks to process
and settle substitute checks, Check 21 has created momentum for this
service.
The basic tools that a company needs to engage in remote image capture
are: a standardized personal computer, a portable scanner, plug-and-play
software with built-in image-quality detection, the Internet or optional
transmission protocols and encryption security. The user scans the deposits,
checks or coupons; presses a transmission button; awaits acknowledgement
from the depository bank; and then views the transactions and postings
online. Since all the images may be converted to image replacement documents
(IRDs) in a pre-image exchange process, the depositor receives an IRD
if the check is returned unpaid.
For companies that use it, remote image capture reduces the costs of
transporting checks to the bank, expedites funds availability, increases
cash flow and provides faster information about forward and return items.
Dynamic Clearing
Most of the new check-clearing services offer full flexibility to deposit paper
checks for truncation and/or check images through a remote capture or direct
image remittance process. If a bank adds dynamic clearing capability to these
services, for each deposited item it would decide the best, quickest and
least expensive clearing route or arrangement—either substitute check,
image exchange or accounts receivable conversion (ARC) to an ACH payment.
The bank would make these decisions based on criteria such as type
of input (paper or image), source of the check and location of the paying
bank, and eligibility for conversion (e.g., only consumer checks are
eligible for ARC conversion).
In this way, dynamic clearing allows treasury managers to integrate
check-to-ACH converted payments with transactions that originated as
electronic payments.
The biggest advantage of dynamic clearing for corporations is expedited
clearing that increases cash flow and the predictability of working capital.
Furthermore, when the payments and processes are streamlined, the corporation
can become more efficient, consolidate vendors and reduce costs.
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