Check 21: A Catch-22

Welcoming Chris Gill

Upcoming Conferences: ATM & Debit Forum

The Results Are In!

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Home > On Payments Issue #7

At the end of next month, a significant piece of payments legislation will go into effect when Check 21 becomes law on October 28th, legislation that could have a decisive impact on the dynamics of check acceptance over the next decade. This issue of On Payments takes a look at the implications of Check 21 and the migration to check imaging for financial institutions, merchants, processors, and ultimately, check writers.

To sign up for an online subscription to On Payments, please click here.

Check 21: A Catch-22

On October 28th, 2004—five days prior to the U.S. Presidential Election—Check 21 will permit financial institutions to present a substitute check for payment using an image replacement document (X9.37-2004) as the legal equivalent of the check itself. This new payment instrument will usher in an age of electronic check image clearing and settlement. Although substitute check volumes are anticipated to be relatively small when compared to the 33+ billion paper checks that may be physically presented for payment next year, it will ensure that the U.S. payments system will be less vulnerable to disruptions, such as those that occurred in September 2001. When the terrorist attacks on September 11th grounded all commercial aircraft, the checks they were transporting stopped moving—and it became evident that paper checks’ reliance on physical transportation was a source of risk for our country’s financial system that needed to be addressed.

Since the Check Clearing for the 21st Century Act was signed into law last October, financial institutions and processors have been preparing for substitute checks and check image clearing. It should be noted that all checks are electronified prior to settlement today; the Check 21 framework simply facilitates the conversion of paper checks into electronic payment instruments earlier in the presentment and clearing process, in many cases at the 'point of deposit.'

Over the next five years, Check 21 will have a widespread impact on the payments industry in the U.S. In the short-term, Check 21 has the potential to introduce significant cost savings; longer-term, it is likely to hasten the decline in check volume. Through a variety of first- and second-order effects, check image clearing will encourage consumers and businesses to accelerate their adoption of electronic payments and reduce the number of checks they write.

In this article we will explore the implications of Check 21 and provide a timeline for migration, as well as discuss the impact of that migration on various industry players and, ultimately, on check writing behavior.

To read the full article (PDF), please click here.

Welcoming Chris Gill

We are pleased to announce the recent addition of Chris Gill to our Financial Services Practice. Chris brings extensive experience in retail banking, delivery channel management and planning, new branch design and strategic planning to the team. Previously, Chris managed the distribution systems at Michigan National Bank and at Commercial Federal. Prior to his banking career, Chris spent five years in consulting at PriceWaterhouseCoopers working with various financial institutions.

Chris can be reached at: cgill@doveconsulting.com or at 617-753-9239.

Upcoming Conferences: ATM & Debit Forum

The leading industry event focused on the ATM and debit industries – Thomson’s ATM & Debit Forum – is taking place on Sunday-Tuesday of next week in Baltimore, MD. The conference will be chaired by Tony Hayes, Managing Director.

The Forum kicks off with a Network Showcase with back-to-back presentations by Accel/Exchange, CO-OP Network, MasterCard, NYCE, PULSE, STAR, and Visa, providing an unparalleled opportunity for financial institutions to compare providers and learn more about this fast-changing space. Keynote speakers at the conference include: Ron Congemi, President of STAR, Ken Kavanagh, Debit & Prepaid Executive at Bank of America, Brian Kett, President of Triton, and Sue Webb, Executive for Strategy & Payments at JPMorgan Chase.

The rest of the agenda includes numerous case studies and examples of best practices from across the industry. Additionally, Tony Hayes and Jessica Ip will co-present findings from our 2004 ATM Deployer Study.

So far more than 450 executives—representing a veritable who’s who of the ATM and debit industries—are planning to attend. We hope to see you there.

The Results Are In!

In the last issue of On Payments we featured a link to a mini-survey on financial institutions’ perceptions of, and priorities for, EFT Networks. Based on the responses, we found that:

 Despite a trend towards rationalizing network participation, 39% of organizations participate in four or more networks.

Almost one in three respondents participates in a selective ATM surcharging alliance, indicating that the ATM revenue model may be transforming away from transaction-based income.
21% of respondents currently offer a prepaid gift card — but 68% have plans to introduce one in the next two years — confirming the widespread interest in this product’s growth potential.

For a full summary of the survey results, please click here.