Automated tape storage for check image archival.

The world of check processing is changing significantly, whether your bank is ready or not. Under the Check Clearing for the 21st Century Act, as of October 28, 2004, financial services institutions can remove paper checks from the check collection or return process. That's great news for organizations looking to tighten cost structures and improve customer service. And, of course, this will also strengthen business performance. Even better, declining technology costs make the investment all the more worthwhile. To realize the full benefit, however, it's vital for your bank to think in terms of building a seamless end-to-end check-processing environment.

As image technology continues to establish its place in the check processing industry, we see more clearly than ever the opportunities and challenges this technology will produce.

There are now demonstrable pockets of implementation success in image POD (proof of deposit), image statements, image cash management and regulatory compliance which demonstrate that the business case potential for check imaging is legitimate and that the foundation technology is sound.

JP Morgan Chase, one of the largest banking companies in the United States, has completely re-engineered its check processing operations. This spans the entire process, from electronic imaging of individual checks--an average of 12 million per day--right through to delivering a copy of a single check when requested by a customer. An automated tape storage solution is the key to the success of this monumental check imaging project. Other financial institutions including Commerce Bank, Fleet, and Wells Fargo have implemented check imaging as well.

Prior to JP Morgan Chase's re-engineering efforts, each check was "touched" approximately 12 times during processing. The automated tape storage solution helped reduce the average number of touch points to just two. Additionally, with high-performance tape drives and libraries and high-capacity media, turnaround time for check retrieval is reduced from up to three days to as little as 20 seconds. When fully implemented, JP Morgan Chase will have the ability to store up to 750 Gigabytes of information, or more than 18 million check images, a day. This system will provide online access to checks, statements, loan applications, reports and other documents that have historically been stored in paper and microfiche formats. The solution also allows Chase to optimize the use of valuable floor space in the company's data center. The bank's seven-year archive will be the largest in the industry--over 1.9 Petabytes or 1,900,000,000,000 Bytes--and hold images of 21 billion checks. Chase's check image reengineering will save an estimated $2 billion to $3 billion a year in paper processing alone.

Success stories like Chase's have also served, however, to highlight some of the key challenges which remain. Significant among these challenges is the topic of archival. Each major check image application has a critical archival component; and invariably the question which must be addressed is whether electronic check images can be stored on a media that is cost-effective and yet provides the access time and data security these applications require.

The data storage challenges which accompany migration to check image archival are to some extent self-evident. For instance, the 80 Bytes of MICR (Magnetic Ink Character Recognition) data per check that financial institutions have traditionally stored is now accompanied by an additional 40,000 Bytes of image data per check, creating an immediate 500-fold increase in storage requirements. Until recently, with the relatively low cost of microfilm, there simply has been no way to justify the added expense of archiving high volumes of digital check images. While microfilm is known to be plagued with quality problems and a high labor cost for retrieval, its place in check archival has remained intractable absent any clear business case to the contrary.

Automated tape systems (tape drives, libraries and high-capacity media) for storage have fundamentally changed the debate concerning image vs. microfilm. For the first time, the cost of tape libraries and media for storing and retrieving check images has fallen below the film and developing cost of microfilm. This means that for any bank making a decision to adopt check image capture, the decision to adopt check image archiving should be automatic.

There are many providers of automated tape storage technology today. There are few emerging storage applications in any industry which so dramatically leverage an automated tape system's product strengths and directions as is the case in check image archiving. In pursuing tape's commitment to check image archival, there are many vendors aggressively partnering with banks and key software vendors to ensure that tape delivers a solution which continues as the technological best of breed, and reflects a keen understanding of the business requirements most critical to the customers' success.

Tape Cost/Performance Characteristics

The following table illustrates the dramatic advantages in performance and cost of today's high-speed and high-capacity tape relative to microfilm and optical storage. These figures are based upon an average check image size of 40,000 bytes and standard list prices for equipment.

The tape retrieval time figures are based on utilization of high-speed robotic libraries; the optical times assume use of high-capacity robotic jukeboxes.

General Concepts in Check Image Archival

When designing a check image archive, requirements can generally be separated into two categories: (1) the image enabling of legacy archive applications; and (2) the support of new image-specific archive applications.

In image enabling legacy applications, the effect of an image archive is typically to replace the use of microfilm copies. The benefits of image technology vs. microfilm relative to these applications are dramatic and include:

* Far greater image clarity

* Accelerated retrieval time

* Reduced labor cost for retrieval

* Improved image distribution alternatives (i.e., the portability of tape, IP transmission, CD-ROM, etc.)

* Ability for concurrent retrieval and/or viewing by multiple users

* Improved customer service (i.e. view cleared checks from the bank's web site)

* Easier consolidation of retrieval functions across multiple bank processing sites

Any application currently relying on the use of microfilm copies would benefit significantly from automated access to an image archive. While the most direct cost reduction benefit would be derived in the image retrieval function, applications that would potentially interface with this archive include:

* Research and adjustments

* Customer service

* Return items

Beyond these legacy applications are a number of additional archival applications that are more specific to particular image applications. For instance, image statements and image cash management products inherently create archival requirements that did not exist in a conventional world. In both of these product examples, banks are expressing an interest in maintaining a separate archive that could quickly and exactly reconstruct image data that had been delivered to customers.

Typical Archive Design Issues

Summarized below are some of the primary considerations going into defining the automated tape component of a check image archive.

Implementation Phase-in Plan

Few banks begin check image implementation with a full POD image capture capability. More commonly, isolated applications such as image statements or image cash management are implemented, followed by a gradual phasing-in of image POD. An associated challenge is defining how an archive can grow through these implementation phases and provide the flexibility to grow into a total bank check image archive.

Archival Software

A number of software vendors--including IBM, AFS, Carreker, Fiserv, Mobius, Banctec and many others--have delivered check image archival software packages and are aggressively enhancing their first-generation products as market demand increases and requirements become more clearly defined. Most tape storage devices are currently compatible with all of these vendors' operating systems. As customers request it, the tape manufacturers will work with each vendor to ensure availability of seamless application interfaces.

These check imaging applications typically include MICR data indexing software which supports the identification of specific check images for retrieval based upon a wide range of inquiry criteria.

Media Migration by Age of Data

An image archive design typically involves the migration of check images from RAID disk for the first 3-5 days after capture, to high-speed tape for the next 30-90 days, to low-cost, high-capacity tape for the remainder of the required 7 years. In most moderate to high check volume environments, optical storage is no longer cost competitive as a general archival medium.

Data Organization

Clearly, tape archive performance can be significantly enhanced if check images are written to tape in a sequence that reflects how the data is likely to be retrieved. For instance, image statements can be created far more efficiently from tape if the stored image data has been organized by account number rather than by item sequence number. The efficiency can be further increased if checks are stored on tape by statement cycle.

Intelligent data organization accelerates retrieval of specific items and also serves to leverage more effectively the large data-buffering capabilities of tape products. In a typical tape retrieval, for example, the equivalent of between 3,500 and 250,000 check images are automatically retrieved into a memory buffer when a single item is requested. The advantages of grouping items onto tape in a way that capitalizes on this buffering capability are significant, as it is highly likely that any subsequent retrieval requests will be for other checks or statements from the same account and timeframe as the original request.

As the cost of check image storage continues to fall, it is likely that banks will actually support multiple archives of the same items, each organized for efficient support of specific calling applications.

Response Time Requirements

In cooperation with several major banks, many tape vendors have performed analyses to address response time requirements of a check image archive for each of the bank's calling applications. While there is a temptation in an image-enabled environment to designate all inquiries as requiring instantaneous response, it is important to understand the cost vs. benefit trade-offs involved. Curiously, as the World Wide Web becomes more of a tool for online banking, it is astounding that the customer is willing to wait longer for a response from a computer than they are with telephones.

Distributed vs. Centralized Design

While approximately 70% of high-speed check reader sorters currently operate remotely from a banks' central data processing facility, economies of scale generally favor consolidation of a check image archival system. Given the relatively high cost of transmitting check images from remote capture sites to central archive facilities, many organizations are considering to write the data remotely to tape and then physically send it to the central site for long-term archival.

Other Tape Media Considerations

There are a number of issues pertaining specifically to tape as a storage media which are especially critical to the discussion of tape's role in check image archival.

Legality of Tape

This issue must be treated as two fundamental questions. First, does storage of electronic images constitute a legally adequate replacement of physical checks or microfilm copies of checks? And secondly, if electronic images of checks are legally adequate for archival purposes, does magnetic tape represent an acceptable medium on which to store those images? There is evidence to suggest that the answer to both questions is "yes".

During discussion of the Check Clearing for the 21st Century Act (Check 21), a legal expert in data-storage requirements and an ex-president of the Information Requirements Clearinghouse, issued the following opinion:

"After reviewing the legal issues in all United States jurisdictions, we have concluded that an organization may proceed to develop an electronic imaging system with magnetic media storage to replace a paper records system without adverse legal consequences. Such a system may incorporate scanning of original records, storage of images and information on any media (including magnetic tapes), and destruction of the paper records."--Donald Skulsky

Specifically concerning tape, the National Archives and Records Administration (NARA) issued a regulation stipulating that computer back-up tapes would satisfy government requirements for preservation of vital records. Under this rule, vital records are those deemed to be essential to meeting operational responsibilities and protecting the government's legal and financial obligations.

Beyond these considerations, it is clear that the Federal Reserve is actively promoting the use of electronic images for archival--both as its own practices suggest and as public statements by Fed representatives suggest.

Longevity of Tape

Extensive independent review at Carnegie Mellon's testing labs estimates the shelf life of tape cartridges at 15 years. Additionally, it was estimated in those tests that a single tape can safely endure 20,000 read/write passes. As a long-term storage medium for check images, tape significantly exceeds any realistic requirements. Beyond this protection, however, automated tape systems store utilization and quality data so that any tape approaching an acceptable threshold of read/write passes or frequency of error corrections can be automatically designated for re-archival to a fresh tape.

Summary

While a document of this length can only superficially address the topic of automated tape storage for check image archival, we hope it has demonstrated that the newest tape products clearly bring new potential to this application. The availability of this extraordinarily low-cost, high-performance and high-capacity storage media eliminates major barriers to the banking industry's broader acceptance of check image processing.

Tape industry consultants from the Tape Technology Council can help you evaluate how tape-based products might support check image technology in your organization.

FORMAT               AVG. RANDOM      AVG. STORAGE COST  AVG. CHECKS PER
                     RETRIEVAL TIME   PER 1,000 CHECKS   UNIT OF MEDIA
                                          (40MB)

Microfilm              3-4 minutes          $0.32             40,000
Optical Disk          10-20 seconds         $0.31            225,000
9GB per disk
Fast-access tape      20-30 seconds         $0.06          1,000,000
40GB per cartridge
High-capacity tape    60-90 seconds         $0.0096       12,500,000
500GB per cartridge
High-capacity tape    60-90 seconds         $0.021         5,000,000
200GB per cartridge
High-capacity tape   100-180 seconds        $0.027         4,000,000
160GB per cartridge

Jeff Laughlin is senior business development manager for Sony Electronics data media businesses and a member of the Tape Technology Council.

www.sony.com

www.tapecouncil.org