RP Solutions Answers Your Questions on Check 21
Recently, Business Solutions magazine surveyed subscribers about the topic of Check 21 and offered the opportunity for participants to submit their own questions. In this forum, Kevin Butler, channel sales manager at RP Solutions, responds to those questions.
How does Check 21 work?
Check 21 allows financial institutions to process checks electronically rather than as a paper transaction. First, a paper check is scanned using a check scanning device. Both sides of the check are captured during scanning and used to create an ICL (image cash letter) file. This file is then electronically transmitted for settlement.
If a financial institution is not capable of receiving and/or processing check images at any point during the clearing process a substitute check, called an IRD (image replacement document), is printed, enabling the financial institution to process it as paper. The substitute check has the same legal equivalency as the original paper check. This paper reproduction of the original check then continues through the clearing process via existing check processing channels. Otherwise, the digital image of the check flows through the clearing process via image exchange networks. While Check 21 does not mandate image exchange, it is the ultimate goal for maximum efficiency of the entire payment industry.
Check 21 opened the door for new business processes. Using remote deposit, for example, businesses can now scan incoming checks using a small check scanner and then transmit deposits electronically to their bank — all from the convenience of their own office. This eliminates their daily trip to the bank.
What is a Check 21 solution?
Although Check 21 refers to the processing of checks as image rather than paper, a Check 21 solution is more than just scanning and depositing checks. What we're really talking about are payment processing solutions that automate the remittance function and leverage check electronification to the fullest.
Check 21 solutions can:
n Extract payment data from checks, payment coupons and full-page invoices by employing recognition technologies such as CAR (courtesy amount recognition) and LAR (legal amount recognition), barcodes, OCR (optical character recognition), ICR (intelligent character recognition) for handwriting, and MICR (magnetic ink character recognition).
n Prepare checks for clearing by Check 21 ICL and ACH (automated clearinghouse)
n Consolidate deposits electronically from multiple remote locations
n Evaluate items for risk and fraud
n Create data extracts for automatic AR posting
n Maintain image archives
n Offer customizable reports
n …and more
A Check 21 solution will do all this for a high volume multi-site enterprise. Yet because it is a very scalable technology, Check 21 is perfectly suited for a small business that just wants to send their deposits to the bank electronically, using remote deposit. So whether checks arrive by mail, at the POS (point of sale), at a teller window, by ATM, or at a lockbox, Check 21 solutions are much more than simply document imaging solutions.
A Check 21 solution also includes scanning hardware. Selection of the check scanner is critical, and is driven primarily by the type of documents that will be scanned (checks, payment coupons, full page invoices, etc.) and the volume/throughput requirements (single-feed, multi-feed, batch processors and high volume transports).
What are the major benefits?
There are many benefits of electronic check clearing, including:
n Enhanced cash flow
n Reduced desk float
n Cut time, costs and risks associated with transporting paper checks
n Make deposits from the convenience of your own office
n Later deposit cutoff times
n Lower bank fees
n Identify fraud sooner
n Improved accuracy
n Reduce capital, operational and staff expenses by eliminating paper processes
n Increase staff productivity by streamlining operations
n Eliminate accounts at multiple banks by consolidating deposits electronically
n Banks can expand their markets outside traditional geographic boundaries
n Banks can provide on-line image based services
n Increase disaster recovery options
What is the cost to procure and implement?
The cost varies tremendously and depends on the specific application (POS, lockbox, back office, etc.), the features required, and the volume of checks being processed. On the hardware side, excellent performing scanners are available for under $4,000. The cost of high volume transports can vary greatly, ranging from $5,000 - $150,000.
A small business could get started with remote deposit, to scan incoming checks and transmit deposits electronically to their bank, for very little cost. All they need is a PC to get started. Typical solutions include a per-item or monthly fee (typically $40 or more). In addition, a scanning device is required and may be bundled with these fees. A business may also elect to purchase a low volume scanner outright, paying $500 to $1,000 depending on the hardware selected.
Why are Check 21 solutions important?
It has been said that Check 21 is the most radical change to hit the check processing industry in 40 years. There are over 30 billion checks written each year in the United States, and they are not going away any time soon. Since remittance and POS comprise over 75% of all check payments, business remittance and retail represent prime targets for check processing innovation. Educating banks and businesses on the benefits of Check 21 is a great way to position yourself as an industry expert, differentiate yourself from the competition and grow your customer relationships.
How do Check 21 solutions fit into a company that's primary business is in servers, storage, and networking hardware?
With hardware margins shrinking, VARs are seeking more profitable business lines to sustain and increase profitability. Check 21 solutions that include value-added services such as consultation, system integration, customization, first or second level support and end user training offer excellent opportunities for high margins.
Some VARs may find that cross-selling to existing customers is preferable to breaking into new markets. Given that financial institutions and business of all types are candidates for Check 21, VARs could immediately start cross-selling it to their own client base. The first step is to ask your customers how they process incoming check deposits or payments. If they receive checks, they are a potential candidate for Check 21.
Businesses with multiple locations, like insurance agencies, retail chains, non-profit organizations, etc. are also prime candidates. If you're working with a client that is part of a larger multi-site organization, a Check 21 solution would give them the ability to consolidate their deposits centrally and eliminate multiple banking relationships to leverage a single banking relationship.
Is the connectivity to the financial institution to execute the transaction over the standard banking network?
Each financial institution will likely have its own requirements and procedures for receiving check image files. For a business that is scanning their own checks, possible methods of getting those images to the bank for deposit include transmission over a secure network connection, file upload via FTP (File Transfer Protocol) or using a web browser and scanning directly to a web portal hosted by the bank. Another alternative is to utilize a third party gateway that has established relationships with many financial institutions and manages these relationships on behalf of the merchant. Using a web browser, the business sends its check images to this gateway and the gateway manages the rest. This gives the merchant the flexibility of switching financial institutions, if desired.