New Jersey Bankers Are Ready for Check 21
By Jennifer Jope
It is fast approaching – the time when Check 21 will be a reality – but despite all the discussion surrounding the check-clearing legislation, most New Jersey bankers say the new law will not impact them much and call it the next logical progression in the banking industry.
Last year, President George W. Bush signed the Check Clearing for the 21st Century Act, also known as Check 21, which will become effective Oct. 28. However, Check 21 does not mandate electronic check processing, it simply makes it possible.
According to the American Bankers Association, Check 21 is expected to streamline and improve check processing.
Right now, most checks are physically transported to various locations before they clear. When Check 21 goes into effect, banks will be able to send digital images of checks electronically. Today, banks can only participate in image exchange if there is a prior written agreement.
The legislation requires that banks and customers accept paper copies of their original checks called substitute checks, which are paper copies of the digital image of an original check and include endorsements from both the front and back of the check.
For banks that continue to process checks manually, a substitute checkwill be made of the image and processed as if it was the original.
The exchange of check images is expected to be more efficient with cheaper overhead costs and increased fraud protection, according to the American Bankers Association.
But some New Jersey banks are ahead of Check 21 and have offered imaging to their customers for years.
“We do images now,” said Lori Wunder, senior vice president and operations manager at Union Center National Bank. “[We have been doing images] since 1996. Our customers are pretty used to it, but we are notifying them.”
New Millenium Bank in New Brunswick also sends customers a check image in their monthly statement. President and Director Chris Van Der Stad said he does not expect much when Oct. 28 comes around.
“We’re predicting it will have minimal impact on us,” he said.
Even New Jersey banks that have not been using imaging technology don’t expect Check 21 to be a major headache; in fact, they are hoping to see any problems worked out before they begin their own imaging.
Minimum Initial Impact
First Hope Bank has been truncating checks since the 1980s, but currently does not do imaging. The bank plans to begin check imaging in April 2005.
“Hopefully by then any bugs will be worked out,” said Mark Macknis, assistant vice president of computer operations.
Even though Check 21 becomes effective on Oct. 28, most New Jersey institutions are not expecting huge volumes of check images.
“We figure it is going to be gradual,” said Wunder. “Our Fed rep doesn’t expect everything to turn over right away.”
Tom Townsend, senior vice president and director of risk management of Sun National Bank in Vineland, agrees.
“On Oct. 28, when it becomes effective, the initial impact will be minimal,” said Townsend.
John Feldman, image transactions and payments executive for transaction services at North Carolina-based Bank of America, said there will likely be a small amount of volume on Oct. 28.
“It’s really something you have to look at over time,” said Feldman. “It’s an evolution not a revolution.”
Feldman expects volume to increase in the next 12 to 18 months, but reminds that this is still somewhat unfamiliar territory.
“This is a path that hasn’t been navigated before,” said Feldman. “It introduces a new level of technology, a new level of complexity.”
Feldman said Bank of America will be “minimally compliant” on Oct. 28 which means the bank will be able to process substitute checks.
Bank of America has been busy integrating FleetBoston into the system and Feldman said the bank has been “disciplined” in coordinating both projects at the same time.
After Oct. 28, the bank will be rolling out various phases allowing the bank to receive images.
BISYS, which provides item processing and imaging for community banks, has created an initiative to allow institutions to access multiple channels for Check 21.
“Customers [can] take advantage by using software we provide,” said Tony Stallings, vice president of product management and business development at BISYS.
Today, institutions choose the cheapest way to process a paper check. With electronic clearing, banks will also want to choose the most cost-effective way to electronically clear images, and there are different channels that BISYS is making available to its clients.
The Federal Reserve is offering products that are “Check 21 enabled” and Enpoint Exchange is a national network that allows for the sending and receiving of check images.
BISYS has approximately 400 banks that utilize BISYS software internally, while there are another 400 to 500 banks that use all or a portion of the software through a service provider.
Stallings said approximately 20 to 25 percent of these clients have expressed an interest in BISYS applications that address Check 21, however, he predicts over time the number will increase.
‘A Substantial Investment’
Mark Damico, president of the Item Processing Group at Fiserv Inc., which processes about 5 billion checks every year for more than 7,000 banks and credit unions, said the company will be spending $4 million to $5 million in new software, printers with magnetic ink printing capability and other tools needed to create the new substitute checks. That amount is on top of several millions of dollars Fiserv has already invested in archival storage capability and building a network of more than 50 processing centers.
"We've already done the major investment," Damico said. "Somebody coming from conventional check-clearing to be able to take advantage of Check 21 has a substantial investment to make."
Currently, Fiserv has more than 900 clients already imaging checks, and is "converting about one client per day," Damico said. "We've had very fast growth here for some time. Generally, clients have been looking toward adopting image statements for a while. I think Check 21 has been a bit of a boost to that."
Including software, hardware and training, First Hope Bank expects to spend $300,000 to convert to check imaging.
Louis J. Pellicori, executive vice president and chief information officer of Sun National Bank, said the bank will not expend huge dollar amounts for the Check 21 conversion.
“It’s not going to be a significant cost,” said Pellicori.
Like many large and small banks, Sun National has been preparing both staff and customers for Check 21.
Townsend said training programs for bank employees have taken place.
“We have to make sure [employees] can at least answer those questions [about Check 21],” said Townsend.
At First Hope Bank, preparation has gone smoothly. Cara Quick, vice president for compliance, said employees are receiving daily emails informing them about Check 21. Cindy Thiel, marketing manager, said the bank is also trying to warn customers about the changes.
“The immediate effect is customers who rely on float, we’re going to see an increase in overdrafts,” said Thiel.
One in 20 consumers reported having any awareness of Check 21, according to a July online survey by Synergistics Research Corp. in Atlanta. While the research firm found awareness low among consumers who currently receive their checks back from their banks, awareness of Check 21 was lowest among those aged 65 or older and those with annual income of $25,000 to $34,900.
Despite all the preparation for Check 21, many New Jersey bank executives said the legislation is a good initiative.
“I think it’s going to be a good thing because it is faster and more efficient,” Quick said.
Other bankers say the substitute check is an interim step and the process will continue to evolve.
“In the future, we will be completely image,” said Donna Deiterle, retail banking executive in New Jersey, New York and Connecticut for Wachovia.
In order for Check 21 to work, Feldman said there will need to be full industry participation and banks will need to cooperate and collaborate on issues like image quality.
“There are going to be some key events that have to happen,” Feldman said.