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Check 21 readiness: a primer
by Dick Jerrier

The age of check image exchange will officially arrive on October 28, 2004. Will your financial institution be ready?

It is certainly in your bank's best interest to ensure that you have arrived at a state of complete readiness on or before that day. Fortunately, if you develop a viable plan of action, your institution will be able to realize all the efficiencies and cost savings inherent in check truncation right from the start.

Check image exchange is a dynamic, volatile issue. And as your bank creates a strategy for moving to image exchange, some important questions will have to be answered. For instance, is it best for you to exchange images directly with other banks, or work though a third-party clearing house? What quality standards should you adopt for the images you send to other banks, and receive from them?

In addition, it's critical that you acknowledge the far-reaching effects Check 21 will have on your bank -- some of which you may not have considered. Yes, it will transform the way you deal with correspondent banks. But the increased availability of images, virtually on demand, can also enhance your customer service capabilities. For instance, by eliminating manual procedures that slow the process (such as the opening of individual envelopes), you'll be able to provide funds more quickly to your corporate customers who conduct lockbox business with you.

Check 21 can also have a dramatic impact on your back office, or "Day Two," transactions, which include the processing of return and exception items, adjustments and associated research. It's important to develop an overall image strategy and tactical solutions which streamline bank processes from the points of customer contact to the back office. Other important factors to consider include vendor selection, solution architecture, integration and testing methodology, as well as workflow and process improvement.

If your financial institution builds a viable strategy, then implements it, you will quickly begin to see the benefits inherent in image exchange: you'll avoid the delays of ground and air transportation methods, lessen the chance of checks being lost, reduce fraud and float through faster clearings, and eliminate backlogs created by paper checks which cannot be physically transported due to weather or unforeseen events.

What are your options?
Image exchange is more than simply transferring files, and banks can choose from different mechanisms for accomplishing that task. Which one is most appropriate for your bank will depend on its size, the number of correspondent banks, how you want to conduct image exchange in the near future, and how you want to do it in the long term.

A good option for a smaller bank may be to work with a third-party aggregator with image capabilities to update its accounts and handle transactional and core processing. Since these aggregators already have the capabilities, the bank can sign on for image capture. And if the bank partners with an aggregator that uses a clearinghouse, returns would come back faster. Since the bank would have to pay for this service, it will not realize the full cost reduction benefits of Check 21. Nonetheless, for banks with less than $5 billion in assets, especially if they use aggregator services already, this may be the most logical approach.

Two approaches to direct image creation and exchange have emerged as the most viable alternatives. Banks may elect to create bilateral agreements that allow for direct-send exchange between themselves and others. Or they may find that image exchange with many banks is best accomplished via the Distributed Traffic Agent (DTA) developed by VECTORsgi for SVPCo, a third-party clearing house. Each approach comes with its own file formats, exchange controls, and settlement models. In either case, banks will need a software solution which facilitates and automates the image exchange process.

For banks that maintain, or desire to establish, their own image archive, software-based solutions have been introduced that reside in the bank to create, send and receive images across an image exchange network. Other banks may choose to develop their own solution, using image exchange networks such as the SVPCo's DTA.

SVPCo is owned by 20 of the largest U.S. clearing and issuing banks, which combined hold more than $2.4 trillion in deposits, and SVPCo members represent a significant portion of U.S. commercial bank deposits. The DTA system manages the exchange of financial transactions among SVPCo members - who are committed to check electronification and its benefits - and bypasses traditional check-clearing houses for the presentment of transactions, returns or exceptions. Banks that choose to utilize the DTA exchange image files with other banks directly, while summary information moves through SVPCo as an intermediary, allowing for settlement or settlement reporting.

You can get there from here.

Your bank may be large or small. You may not use check images at all at the moment, or you may already use them in a variety of ways. You may want to exchange images with other banks only when necessary, or you may want to eliminate paper checks from your processes altogether. The fact is, not matter where your bank is on the "road' to image exchange, you can get to where you want to be from where you are now. The key is readiness.

Check 21 readiness is best achieved in a planned and managed set of phases:

  1. Develop an image strategy. This includes looking at check image capture, check image quality assurance, image archiving, and the image enabling of your back office. Such a plan should not be a response to tactical or competitive initiatives or solutions, but rather a strategic initiative supported by the bank's executive management. The plan should be all-encompassing and focused on a synergistic approach. Maintain your primary focus on imaging related to check processing, which will become the foundation for future image deployments. Considerations for the imaging of bank statements, loans, mortgages and trust issues could follow, based on the recommendations of the action plan team or the specific needs of your bank.
  2. Evaluate your bank's state of readiness at the present. Identify and consult with candidate exchange partners and vendors of image exchange software. This will help you understand the available options, and decide which one is best-suited to your bank's specific requirements.
  3. Finally, execute and monitor the necessary steps to implement your bank's chosen image and image exchange strategy.

While you're moving through these steps, learn all you can about Check 21 and the latest developments. Attend conferences, avail yourself of web resources such as, ask for lessons learned, and network with those who have experienced the trials and successes of image initiatives. This will help you determine how you want to exchange images with other banks, the initiatives you must undertake to achieve that objective, and the time frame you want to achieve it in.

The countdown to Check 21 implementation has begun. This is a major moment in history for the banking and financial industry. Those financial institutions making the right moves and positioning themselves to reap the full benefit of what the electronic era will bring will have an edge over their competition. When they develop the right "roadmap," financial institutions can indeed adapt and transition smoothly to the electronic check delivery environment that is Check 21.

Dick Jerrier ( is Vice President of Consulting Services for VECTORsgi, a leading provider of financial transaction processing, image exchange, currency control, reconciliation and e-commerce solutions to financial institutions and corporations around the world. The world's largest banks depend on VECTORsgi products and services to help reach objectives such as operational streamlining and the implementation of check image technology. VECTORsgi's software products, VECTOR Solutions, have been licensed over 2300 times. VECTORsgi Consulting Services assists banks by providing management consulting and business practice improvement. Working in six areas of expertise, including image exchange readiness and implementation, they help banks and other financial institutions become more profitable by reducing expenses, increasing revenue, streamlining processes, and by helping increase competitive differentiation and customer satisfaction. For more information, visit (link).

First published on 01/01/2001

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