Transcript AR Express - Utility Payment Conference

What Every Utility
Should Know
About Check 21
Utility Payment Conference
Presented by
Jim Mills
VP Business
Development
Check 21
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What is Check 21?
How does it work?
Check 21 versus ACH
Benefits of Check 21
Getting started
Consumer Payment Survey
Source: 2008 Survey of Consumer Payment Choices from the Federal Reserve Bank of Boston
• Cash is the most widely used payment method for retail
transactions
• Checks are still the most widely used method for Bill
Payments
• Security and Ease of Use are the most common
concerns of payment types
• 91% of Consumers have a checking account
90%
82%
80%
65%
70%
56%
60%
50%
40%
30%
20%
10%
0%
Pay by Mail or In Person
Online Bill Payment
Automatic Bill Payment
Distribution for Non-Cash Payments
• Debit Card transactions now exceed Credit Cards
• In 2006 30.6Billion checks were written & valued at
$41.7 Trillion
• Return Checks Represent .05%
• 40% of Bank Clearings Occurred via Electronic Check
2003
2006
19%
46%
23%
1%
11%
Debit Cards
Credit Cards
ACH
EBT
Checks
33%
16%
1%
27%
23%
Debit Cards
Credit Cards
ACH
EBT
Checks
Aren’t Checks Going Away?
“One-third of all non-cash US payments
are made by paper checks.”
“Checks are still the most popular form
of payment used by consumers to
pay bills”
“Businesses pay 74%
of their B2B payments
by check.”
Why was Check 21 Created?
To Reduce Dependency on Physical Checks
– Over 30 billion checks are
written per year in US
– September 11, 2001
– Planes were grounded
– Checks could not clear
– $47B in Fed holdover
The Check-21 Act’s Purpose
“Check Clearing for the 21st Century Act” or “Check-21 Act”
PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1177 Public Law 108–100 108th Congress
“To facilitate check truncation by authorizing substitute checks, to
foster innovation in the check collection system without mandating
receipt of checks in electronic form, and to improve the overall
efficiency of the Nation’s payments system, and for other
purposes.”
“Old” Paper Process
Business receives
checks
Paper checks are
delivered to the bank
Collecting
bank
Courier to
FED
Paying
bank
Federal
Reserve
Check 21 Process
Business scans
incoming checks
Check images
transmitted to the bank
Collecting
bank
Check images
transmitted to bank
Paying
bank
Substitute checks,
if required
Federal
Reserve
Images
transmitted
to FED
Check 21 Has Exploded
# Items in Millions
58 Million
Check Images per Day
10
Check Images
Source: Federal Reserve, Viewpointe, The Clearing House and local / regional exchanges
What is Check-21?
• Check-21 law Governs use of “Substitute Checks”
• The Check Clearing for the 21st Century Act (Check21) was:
– Introduced to Congress by Chairman Greenspan
on December 21, 2001, and enacted on October
28, 2004
• Other names that are similar but confused with the
Check-21 Act:
– Image Cash Letter
– X.937 (ANSI X.9.100-180)
– Image Exchange (Image Cash Letter)
– Electronic Check (e-Check)
– Check Conversion
– Check Image
Check-21 Enacted
• Substitute Check standards for legal equivalence to
the Original Check
• Mandated that parties cannot refuse a substitute
check but parties are not mandated to create a
substitute check
• All checks are eligible except foreign checks
• Provided warranties and indemnifications
• Expedited re-credit features (External Processing
Codes in position 44)
– 4 = substitute check
– 5 = qualified return substitute check
Substitute Check (Image Replacement Document)
This is a Legal Copy of your check,
You can use it the same way you would use the original check.
Contains an Image (Front/Back ) of Original Check
“4” in position 44
2D Barcode Optional Security Feature
Contains Original MICR Information
Image Quality Assessment & Usability
(IQUA)
Too Light
Oversized
Too Dark
Undersized
Torn or folded corners
Has a piggyback document
Torn or folded edges
Excess spot noise
Horizontal Streaks
Frame error detection
Blow the minimum size
Rear image mismatched
Above the maximum size
Strip Detected
Excess skew
Upside down
ACH TRANSACTION TYPES
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CCD - Cash Concentration and Distribution
PPD - Prearranged Payment and Deposit
ARC - Accounts Receivable Entry
POP - Point of Purchase
BOC - Back Office Conversion
RCK - Re-presented Check Entry
Tel - Telephone-Initiated Entry
Web - Internet-Initiated Entry
Check Conversion and Check-21 Comparison
ARC
POP
BOC
Check-21
USE
Check
Payment by
mail or
lockbox
In Person
Payment at
Point of Sale
In person
payment
converted in
back office
Substitute
Check
permitting
truncation and
electronic
clearing
Eligibility
Checks with
non aux on-us
Checks with
non aux on-us
Checks with
non aux on-us
All US checks
Dollar Limits
< $25,000
< $25,000
< $25,000
No Limit
Authorization/
Notification
Notification
and Opt-out
Option
Authorization
Signature at
POS
Notification
POS sign,
handout,
receipt
None
Check Conversion and Check-21 Comparison
ARC
POP
BOC
Original Check Mailed or Drop Voided at POS Destroyed
Requirements box
within 14 days
Check-21
None
Individual Opt- Yes- must give Yes- must give Yes- must give None
out
option
option
option
Typical
Clearing
Times
Next Day or
Same Day
Next Day or
Same Day
Next Day or
Same Day
Next Day or
Same Day
Typical Return
Item
Notification
Times
2 days
2 days
2 days
2 days
Dispute
Timeframes
60 days
60 days
60 days
45 days from
Statement
Pros’ and Con’s
Check-21 vs. Paper Check Handling
Pros
Cons
Reduced Labor Cost to
Process
Customer Gets a Check
Image Back and Not the
Original Check
Eliminate or Reduce
Courier Fees
Small Risk of Double
Posting or Poor Image
Quality
Reduced Bank Fees
The Need for Archived
Images
Improved DSO - Potential
For Intraday Posting
Necessitates Shredding
(Destroying) Checks
Expedited Returns
Less Capital Expense for
Processing Equipment
Faster, Cheaper, Better – No Brainer
Pros’ and Con’s Check-21 cont…
Pros
Cons
Check Are Widely
Understood
Paper Handling is
Expensive
Document Contains Rich
Information
In the Days of Float:
Knowing the Funds
Availability Schedules
Widely Accepted
Checks re More Easily
Counterfited
90% of Checks Cleared
with Check-21
Variations in X.937 Interface
Standards
Opportunity for Same Day
Settlement
Check Law Requires 7
Years Image Storage
No Opt-Out Requirements
Unlimited Dollar Amount
Depending Upon Your Bank
Check-21 Can Cost Less
per Transaction and Bank
Fees May Be Lower
Pros’ and Con’s
ACH Check Conversion
Pros
Cons
Predictable Next Day
Settlement for Debits
Complicated Regulations
Wide Acceptance Among
Financial Institutions
Strict Rules and
Regulations
More Secure Against Fraud
Than a Check
ODFI Required for
Origination and Detailed
Contractual Agreements
Low Opt-Out Rates
$25,000 Limit and No
Business Checks
Image Retention Only 2
Years
Can be Confusing for End
Customers, Limited Detail
on Bank Statements
Benefits of Check-21
• Eliminate daily trips to the
bank
• Faster funds availability
• Later cutoff times
• Reduce errors and
deposit prep time
• Identify fraud sooner
• Eliminate accounts at
multiple banks by
consolidating
electronically
• Consolidate deposits
from multiple locations
Getting Started
(1) Receive
payments
(2) Scan using Check 21
software & scanner
(4) Update A/R
(3) Send files to bank
Distributed Environment
Deposits from multiple
sites are consolidated
at the Central Office
Central
Office
A single ICL file is
sent to the bank
THANK YOU
REFERENCES
References
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Argento, M. D., Stanton, J. R., Bachelder, E. L., & Stewart, D. C. (2007, December). The 2007
Federal Reserve Payment Study. Federal Reserve Bank of Boston.
Check Clearing for the 21st Century Act, Public Law 108-100 117 Stat. 1177 U.S.C. § H.R. 1474
(Oct 28, 2003).
The Continuous progress of Check-21-enabled Services. (2010, July). Retrieved from Federal
Reserve Bank of Atlanta website: http://www.frbservices.org
ECCHO. (n.d.). ECCHO [Substitute Checks: Development of Processing and Quality Standards].
Retrieved August 10, 2010, from http://eccho.org/check21_resource.php
Foster, K., Meijer, E., Schuh, S., & Zabek, M. (2010, January). The 2008 Survey of Consumer
Payment Choices. 2008-2010 Federal Reserve Bank of Boston.
Johnson, D. (2008, January). Check Conversion and Check-21 Comparison Grid. Ithaca NY: RP
Solutions.
Rasche, C. (2010, May). First Federal weathers CHeck-21 ripple effect on check adjustments
(Federal Reserve Bank of Atlanta, Ed.). Retrieved from http://www.frbservices.org/
RP Solutions. (2009). ExpertRPS (Version 2.04) [Computer software]. Duplicate Check Detection
Screenshot, IQUA Screenshot: RP Solutions.
Sabasteanski, C. (2004, March). Transformation in the Check Industry. FISC Solutions.
2002 Electronic Payments Review and Buyers Guide: Vols. Pages 10-21. - Understanding the
ACH Network: An ACH Primer. (2002). (Original work published 2002)