Electronification - A New Word Appears in Banking

Paper checks may not be disappearing as some predicted a few decades ago, but the method of using them is taking new form. And, as so often happens in industry, the new method has added a word to the English language: electronification.

The word appeared in headlines recently announcing Visa's launch of a pilot program in electronic check processing. Visa, which already has an extensive network for debit and credit card verifications, will be testing and evaluating the in-store performance of the new technology.

The retailer takes the paper check at point of sale, scans it, and the information on the check is converted into an electronic transaction. The check is handed back to the customer as a receipt. The scanner has picked up information such as the customer's bank, checking account number, and the amount of the transaction. That information is sent through Visa's processing network and the automated clearinghouse. Settlement takes one to two days.

For the tests, Visa will upgrade its network so that electronic checks are sent to banks for posting to consumers' accounts, thereby giving banks the authority to authorize and guarantee them instead of the traditional check guarantee companies.

Meanwhile, the federal government also is testing such a system. The Federal Reserve Bank of Boston has entered into a pilot program with RDM Corporation, a software developer, to test image-based check conversion at several U.S. federal government agency retail locations. Like with the Visa project, a check is scanned at point of sale and converted into an automated clearing house transaction In this case, RDM will provide check verification and ACH initiation service through multiple third-party service providers. The pilot will be used for various Patent and Trademark offices.

Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 2, 2/00