BANKING Imaging proposal suggests check won't be in the mail

Check imaging is expected to save money in the long run.
DALLAS MORNING NEWS
When you write a check, the piece of paper that you rip out of your checkbook is handled by about a dozen people and takes a couple of truck trips and maybe even a plane ride or two before it makes its way back to you in your monthly bank statement.
Multiply that by 41 billion times a year, and you get a picture of the nation's lumbering check-processing system, supported by 300 check-clearing centers and 50,000 employees.
No wonder then that banks pay anywhere from $6 billion to $8 billion per year to process checks, and customers wait up to five days for funds to become available on an out-of-state check.
But that's due to change. The nation's banking system is gearing up for a huge retooling to take advantage of the Check Clearing for the 21st Century Act, also known as Check 21, federal legislation that has been approved overwhelmingly by both the House and Senate.
Under the bill, as banks process checks to get the money from the check writer's account to the check depositor's account, electronic images of checks -- or printouts that can be processed -- will be considered as good as the actual paper checks themselves.
Congressional conferees need to reconcile the two versions before it is signed into law, which is expected by the end of the year. It will be at least a year before the changes go into effect.
Experts say a full, image-based system should eventually shave $2.1 billion off processing costs for banks each year. And a bank can gain at least 24 hours in processing time by clearing some nonlocal checks electronically.
Large banks such as Bank One, Bank of America, J.P. Morgan Chase & amp; Co. and Washington Mutual are already ramping up their imaging operations.
But the leap from paper checks to image bytes will require millions of dollars in equipment, expensive back-office tuneups and retooling of operations. Celent Communications, a Boston-based research firm, estimates that the annual information technology expenditures relating to check imaging will rise from $550 million in 2003 to $1.9 billion by 2005.
"The immediate benefits for banks will be from quicker processing and more services to customers," said Nessa Feddis, senior federal counsel at the American Bankers Association, an industry trade group. "But initially the benefits will be less than the transformation costs."
The image-exchange movement is very much in its infancy, with only a handful of banks expected to have the ability to do it by 2004, industry experts say. But these pioneering banks account for a sizable portion of the nation's check volume and will stimulate the transformation at other banks. Celent Communications predicts that widespread adoption of check imaging will begin in late 2004 and early 2005.
For the industry, the change by no means will be uniform or easy. There are many challenges.
First, banks have never exchanged check images before, except in pilot studies. Second, there are no agreed-upon technical standards for the quality of images. And third, banks won't be required to switch to imaging. So some banks will image while others will still process paper checks -- or printouts of other banks' check images -- the old-fashioned way.
"The decision to participate in Check 21 is going to vary among banks," said Steve Whitney, senior vice president at the Federal Reserve Bank of Boston. "The business case is also going to vary significantly between institutions."
The concept of using electronic images gained momentum after the terrorist attacks of Sept. 11, 2001, when the air transportation system ground to a halt, stranding millions of checks en route between banks. Legislators wanted a system that would keep moving despite transportation hassles.
Check imaging itself is not new. The technology has been around for about a decade, and many banks already have the ability to scan check images for archiving purposes.
What the Check 21 legislation does, however, is nudge banks into the future by allowing an electronic exchange. Other industries already save millions of dollars a year by e-mailing documents instead of physically transporting them.
In the case of checks, banks will be able to exchange electronic images over a proprietary system linking them with check clearinghouses. Because the process involves the banking system, the technical specifications, standards and safety measures are exacting.