The laws that govern the physical exchange of checks are quite complex. Today, banks still get together and exchange checks, and as a result, many pilots who work for courier services still have full-time jobs. The terrorist attacks of 9/11 provided the impetus behind Check 21. Tons of paper checks were sitting on planes, and they sat, uncleared, on the ground for days. Checks are a commodity where technology can be used to cut costs, and provide business continuity as well.Ed Herman, the director of global payments portfolio at EDS, says his company is working with the majority of the top 25 banks in the country to solve the major Check 21 issues. EDS has been involved in check processing for more than 30 years, and Herman says a large portion of EDS overall business is from an outsourcing perspective. "People dont know were performing these activities behind the scenes," Herman says. "Banks dont want to tell their customers, By the way, were outsourcing your check processing." In reality, banks dont have to do much to comply with the legislation. They just have to accept the IRD as legal tender in lieu of an original check. They dont have to be able to create IRDsthey just have to accept them. "People think the legislation is forcing banks to do a lot of different things but its really not," Herman says. The reason banks are going to want to comply is to reduce overall costs of clearing checks. By being able to capture the image of the check at the earliest point in the process, banks can avoid putting checks on planes and shipping them around, which will reduce courier costs and reduce float. Click here for more on how Check 21 could affect you. By capturing a check as an image and transmitting it across the country, you can clear it one to two days faster than is possible today. The third reason to get with the Check 21 Act is the ability to reduce fraud. If its a bad check, a bank will know about it in one day, rather than two to four days as they do now. "Fraud prevention is a huge opportunity," Herman says with certainty. But Check 21 does open the door to other types of fraud. The crooks out there are undoubtedly looking for ways to get their hands on digital images of checks. When you digitize, you lose security features such as watermarks. Banks have systems in place today that look at certain patterns of behavior. Digitizing images will help accelerate the ability to pick up on fraud. The biggest check frauds happen when crooks use the same check number over and over, using different payees and trying to clear through different banks. Fraud purveyors will still find ways to take advantage, but theyll be challenged. Today, a crook might try to make a deposit with a fraudulent check. A fraud artist knows exactly how long it takes to clear a bad check, so the crook takes the money out before it clears. Once Check 21 is implemented fully, the banks will know in one day that its a bad check, so the hold time is much shorter. Well continue to analyze Check 21 issues as the act is implemented. Check out eWEEK.coms Finance Center at http://finance.eweek.com for the latest news, views and analysis on financial applications and services for the enterprise and small businesses.
One of the big hurdles is the whole archiving issue, which is partially practical and partially emotional. Most physical checks will be destroyed. This is part of the technology quagmire, though, as the exact process hasnt been mandated. Every bank can handle original paper checks on its own. Some banking officials think the original will be destroyed within three days of presentation at some point in the not-too-distant future.