Check 21’s Impact: 18 Months Later
BY MICHAEL K. HARRIS
IRDs have been put to use waiting for infrastructure development to “catch up.”
Certain Check 21 predictions have been accurate — 40 million Image Replacement Documents have been printed to avoid transportation costs or to support remote deposit capture. But infrastructure development may take longer than expected and it’s too early to know Check 21’s impact on fraud.
Two weeks before the Check Clearing for the 21st Century Act was to be implemented in October 2004, while moderating the BAI Check 21 Readiness Forum, I was asked to take a “plunge” into the world of check prophecy. What, I was asked, are your 12 predictions for the future?
A great deal has been learned since those predictions were made. Let’s compare them against what’s transpired in the last 18 months.
Some of the predictions were no-brainers. As expected, most checks continue to be processed the same way as before the implementation date, and most banks were ready. Although Check 21 and subsequent Regulation CC changes enabled check collection via substitute checks, or Image Replacement Documents (IRDs), major changes were not mandated. And, banks had plenty of time in the preceding 12 months to prepare their customers.
My assessment of the state of image presentment and distributed print capabilities within the industry also held up. Basically, I believed that the overall infrastructure required for banks to present and/or exchange images of checks was still in development. Individual technical components of an infrastructure did exist, but the integration of those components into an inter-bank, end-to-end processing solution was lacking.
It seemed logical to assume that: (a) numbers of IRDs would be printed in order to avoid the transportation cost in the collection of large dollar items and (b) numbers of IRDs would be printed to address the demand of the corporate clients for remote deposit capture while waiting for the infrastructure to “catch up.” ECCHO reports that substitute checks used in the forward collection process grew from less than 4 million in January 2005 to more than 40 million in December.
While I had originally estimated that the infrastructure would take 18 to 30 months to complete, I now believe 30 months is more likely and may be conservative, since the end-to-end infrastructure demands investments and changes on behalf of all banks in the process while the environment continue to mature.
In the category of “still awaiting the final results” are my predictions of higher fraud rates as a result of Check 21. Without the original document, it’s difficult to tell whether a check has been forged or altered, for example. But I believe the industry as a whole has done a good job in diminishing the potential for duplicate items by implementing technology, manual procedures, legal agreements and education to address that issue from the point of inception (as in the case of remote deposit capture) to the creation of files and/or the printing of IRDs.
I also believe that the volume of checks will continue to decline as the payments industry continues to promote other electronic payments instruments to an increasingly “electronics-savvy” populace. I am seeing this change occur as “fast food” restaurants move to cash and electronics and gasoline and convenience stores continue to promote electronics. Even charitable organizations are accepting electronic contributions.
Ultimately, solutions that are cost-effective, quickly adaptable, stable, scalable and secure will have the advantage.
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Mr. Harris is an independent industry consultant and can be reached at mhrrs@sbcglobal.net.