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The Role of Check Images in Internet Banking: An Introduction
By Madeleine Tausk
Email: MHTAUSK@AOL.COM
Madeleine Tausk is employed at Bank of America, NT&SA in San Francisco,
California as Assistant Vice President / Project Manager. Her projects focus
on check image technology implementations. Ms. Tausk is also a candidate for Doctorate of Business Administration at
Golden Gate University in San Francisco, California. Her focus is in the area
of alternative delivery mechanisms in Banking.
ABSTRACT:
In the JIBC, there is considerable discussion and articles that address
Electronic Banking and Commerce in general, but very few that present
information relative to specific products that may be available for consumers
and businesses over the Internet. The purpose of this article is to address
specifically one of those products, checks.
Statistics indicate that check volume is at a peak and continues to grow.
This trend is attributed to many factors. The question is, given that we will
have to continue to deal with paper checks, at least in the near future, how
might we integrate them into the non-traditional forms of banking? This
article suggests transforming the paper checks into electronic information,
or digitize them. Digital technology will not only offer integration of this
traditional payment form with alternative delivery systems, but it will also
enable more efficient processing of checks.
The future of alternative forms of banking looks promising and checks appear
to be in the equation for some time to come. Image technology provides the
opportunity to integrate these two in a harmonious relationship for the
banking customer.
=========================
The information represented in this article does not reflect the opinions or
views of BankAmerica Corporation.
=========================
Why Discuss Paper Checks?
In the JIBC, there is considerable discussion and articles that address
Electronic Banking and Commerce in general, but very few that present
information relative to specific products that may be available for consumers
and businesses over the Internet. The purpose of this article is to address
specifically one of those products, checks.
The Future of Paper Checks
It has been widely accepted that along with the advent of Internet banking,
bank by phone, stored-value cards, and other such alternative banking
delivery methods that the traditional check is potentially on it’s way to
becoming extinct. In fact, statistics indicate that check volume is at a peak
of 63 billion, and the number of checks is expected to grow about 3% per year
There are several reasons for this increase. The number of payment
transactions in this country is at an all-time high. Since checks are a form
of payment, their volumes have increased as well, although check writing as a
percent of overall payments has decreased. Some payments that originate
electronically, (i.e. on-line bill payment), are ultimately completed by
checks written by the providers of these services.
Introduction to Image Technology
Given that we will have to continue to deal with paper checks, at least in
the near future, how might we integrate them into the non-traditional forms
of banking? One option is not to integrate them. Simply stated, paper forms
of payment remain paper and are accessed through traditional methods, (paper
checks returned or via microfilm). Another option is to transform the paper
checks into electronic information, or digitize them. Digital technology will
not only offer integration of this traditional payment form with alternative
delivery systems, but it will also enable more efficient processing of
checks.
By definition, imaging is digitizing information, (transforming information
into a series of ones and zero’s) for storage and retrieval. Digital check
images can be stored in the same way as digital data, (i.e.: written to
magnetic disk, optical platters, or to tape). Check imaging is not new, but
technological advances in microprocessor speed, storage, telecommunications,
data compression algorithms, and artificial intelligence pattern recognition
have assisted in making check imaging more practical and possibly profitable.
Operational Benefits to Digitized Check Information
Banks process millions of checks per day. Conventional processing of checks
involves reading MICR (Magnetic Character Information Recognition) line
information on items to determine issuing bank. If the issuing bank is one
other than the bank of {first deposit}, that check must be physically
delivered to the issuing institution to collect the associated funds. Banks
in turn withdraw the appropriate funds from customers accounts. Banks spend a
considerable amount of money delivering checks to the issuing financial
institutions so that the institution that accepted them can collect the
funds. The money that is in limbo while this is happening is money that the
check issuing institution can invest. This is currently worth millions per
day. If the check images were electronically presented in lieu of the
physical paper, checks could be cleared instantly. Checks could be truncated
at bank of first deposit and instead of flying checks, images could be
electronically transmitted among financial institutions, the Federal Reserve
Banks included.
Banks also spend a considerable amount of money storing paper checks and
copies, (microfilm). By law, banks must retain this microfilm for a minimum
of 5-8 years, (varies state by state). The cost is magnified considering the
expense to perform research and inquiries based on this microfilm. Truncating
checks and utilizing images can drastically reduce the research functions
related to checks. Image technology alone does not bring about all of these
benefits. Workflow plays a significant role. Check imaging offers the vehicle
by which workflow can be implemented to achieve notable processing benefits.
Potential of Digitized Checks in Internet Banking
Finally, there are options to interface with alternative delivery mechanisms
for banking. Because check images can be stored on a variety of media, this
creates the potential for check archive systems where check images are stored
in a repository. Any authorized user, internal or external to the bank could
access a picture of a check in this archive. The Internet provides an
extremely viable delivery mechanism for customers external to the bank. For
those who still have a requirement to see all their checks with a bank
statement, actual checks can be eliminated by digitized pictures enclosed
with statements.
The future of alternative forms of banking looks promising and checks appear
to be in the equation for some time to come. Image technology provides the
opportunity to integrate these two in a harmonious relationship for the
banking customer.