Check 21 Rules Present Banks with New Challenges

Banks will deploy data management tools to handle new check imaging technology and regulations.

Banking institutions, soon to be freed of requirements that they process paper checks by shipping actual pieces of paper among institutions, are poised to deploy imaging and data management tools that will catapult another portion of their businesses into the digital age.

The Check Clearing for the 21st Century Act, which will go into effect Oct. 28, will allow financial institutions that receive a check from another bank to send an image of the check rather than the physical paper check to the paying bank. As a result, new image exchange, archiving and fraud protection technology will be crucial to help financial services companies rearchitect their data management systems to comply with the act, which is known as Check 21, analysts say.

/zimages/4/28571.gifClick here to read more about Check 21.

Declining check volumes are spurring interest to abandon reliance upon paper checks. According to a recent report by Forrester Research Inc., in Cambridge, Mass., the Federal Reserve processed 15.81 billion checks last year—down 4.7 percent from 2002.

In fact, Check 21 legislation was born from the federal governments realization when air transportation was grounded for several days after the Sept. 11, 2001, terrorist attacks that the physical check clearing systems had an Achilles heel, said John Feldman, image, translation and payments executive with Bank of America Corp.s Technology Operations Group.

Feldman said the adoption of image exchange capabilities that will be allowed under Check 21 will benefit financial institutions in several ways. They will remove costs and risks from the current system, introduce more efficient and historically accurate electronics-based processes, and build new product suites that are more information-rich than current paper-based tools.

"What banks will do is look to create additional products to leverage the technology and attach other types of information to it," said Feldman. "For instance, there could be an account number assigned to [the electronic file] that could allow a company to automate their accounts receivable and reconciliation functions."

In addition, Feldman said Check 21 should bolster re-education of check fraud using technology to better decipher fraudulent items.

"[Check 21] really creates a next generation of technology. ... The key ultimately is that the majority of banks have to plan for this to really move beyond the physical to the virtual world," Feldman said.

/zimages/4/ Finance Center Editor Theresa Carey wonders whether banks and their customers are ready for the transition. Click here to read her column.

Bank of America, of Charlotte, N.C., is leveraging technology from Viewpointe Archive Services LLC to archive images, ensure their quality and exchange electronic images with other banks. Houston-based Viewpointe operates a massive data repository that holds about 44 billion 26KB images of checks, according to the companys CEO, John Lettko.

Founded by IBM, Bank of America and Chase Bank, Viewpointe also supports check data from U.S. Bancorp Inc. and SunTrust Banks Inc., among other financial customers. The Viewpointe archive employs IBM Enterprise Storage Server for disk storage and IBM LTO (Linear Tape-Open) backup drives.

To recruit more financial institutions to store check data in its national archive, Viewpointe this month will introduce a new service called ImageAssure. As part of the service, which is currently available, the company will create a new partition in its archive accessible only by the new customer. The new customer would put in phone lines or direct data lines to Viewpointe, and on a nightly basis, as they run their processes, they would stream duplicate data for Viewpointe to archive and store as well. Standard APIs enable integration into existing image delivery and retrieval software applications used by other banks.

"The vast majority of banks that have their own archives are typically smaller, and when they initially put in their systems, there was no Check 21, so a lot of them did not put in sufficient disaster recovery or redundancy," said Lettko. ImageAssure "gives them some of the hardening thats necessary in order to play in Check 21, and down the road, it gives them options for [electronic check image] routing," he said.

As adoption of Check 21 picks up steam over the next few years, banks eventually will be able to not only send links to an image but also perform actions via electronic check presentment files, said Alenka Grealish, an analyst at Boston-based Celent Communications LLC.

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