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A two-year-old law keeps changing the shape of banking.

After the events of September 11, banking as we know it changed forever.


Gone for many people are the days of banking at local branches or keeping piles of checks on hand as tax records or for accounting purposes. Instead, we are witnessing an evolving bank landscape focused on technology and effectiveness.

The reason: During the days following the terrorist attacks in 2001, check clearing was brought to a halt. It became evident that the inefficiencies associated with flying checks around the country demanded a modernization of the entire check-clearing process. National legislation was written, and the Check Clearing Act for the 21st Century (Check 21) was enacted to eliminate the cumbersome logistics of routing paper checks across the country.

But Check 21 did more. It has inspired new gains in efficiency and effectiveness through changes to people, processes and technology.

Check 21 did not mandate that banks image-enable processing operations or exchange images with other banks. Instead, it opened the door.

Signed into law in October 2003 and effective a year later, Check 21 allowed for the creation of a substitute check: an electronic image of a client's original check that can be sent electronically wherever it needs to go for processing, yet still serve as the legal equivalent of the original paper. By creating substitute checks, banks are able to remove the paper from the collection and return processes.

Check 21 and the creation of the substitute check set a foundation for innovations that have since been brought to market, and as such, Check 21 is a marketplace enabler.

Remote deposit capture, which some consider to be one of the most significant innovations in banking in decades, is both a direct result and benefit of Check 21 legislation. It has taken the market by storm.

Remote deposit capture allows businesses--small and large alike--to utilize desktop scanning devices and software to capture images of remittance checks at either an office or store location. Checks are then deposited by transmitting images to a bank instead of physically delivering the original paper items.

More and more companies have adopted remote deposit capture because of its benefits:

* Ability to make a deposit from one's own office or store.

* Reduced transportation and other handling costs, eliminating some bank fees.

* Ability to deposit into one account at one bank, instead of into multiple accounts at multiple institutions.

* Improved funds availability by eliminating funds-concentration delays.

* Extended daily deposit windows.

But there are still some benefits of Check 21 that have yet to be realized.

Image exchange, the clearing of images between financial institutions, will soon become one of the most significant technological accomplishments resulting from Check 21 legislation. While the incorporation of this system has been slower than initially expected, it has recently gained momentum. In fact, the number of image payments has continued to increase month-over-month in 2006.

Over the next 12 to 24 months, image exchange will become more prevalent in banks throughout the country, and its full potential will become clear. When it is realized, banking customers can expect to see their checks clearing faster. Companies will also be able to meet earlier deposit deadlines, which could lead to reduced float and improved funds availability. Image exchange also holds the promise of more efficient and effective fraud-detection technology.

At its inception, Check 21 legislation was intended to foster innovation, and it is clear that two years later this legislation continues to generate new ideas. Today, banks across the country are developing technologies and services that deliver more value for their clients. Yet, it is important to remember that some of the technology that will arise from Check 21 legislation is still in development. Hence, business owners can expect to find more inspired growth, enhancements and capabilities--benefits that go beyond anything Check 21 originally intended.

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Author:Hobbs, Michael B.
Article Type:Column
Geographic Code:1USA
Date:Dec 1, 2006
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