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Check 21 – Technology in Banking

Check 21 is the short name for the Check Clearing for the 21st Century Act. This law was enacted in October 2003, going into effect one year later.  It is the law that allows recipients of checks to create a digital format. This removes the need for any further handling of the original document. With the mainstream acceptance of online shopping and automatic payment processing, it was becoming more expensive to handle checks and process them efficiently. The Act was designed to improve the effectiveness of check payment processing.  Technological advancements have increased the resolution and clarity of scanned documents. Quality image scanners are inexpensive and easy to operate. As a result, many businesses and consumers alike began to bypass the postal service and other transportation methods for quick receipt of important documents. Check 21 enables vendors to receive funds faster, improves customer service and allows for more efficient collection of returned check fees. Transportation costs are dramatically reduced as checks can now be scanned and electronically processed. As many duties are now automated, the personnel requirements have been reduced which saves on payroll. The space needed for storage of the checks can now be allocated to more useful purposes. Check 21 affords many benefits to financial institutions and the commercial customer. For the industry, first and foremost, it eliminates the monetary risk associated with the movement and storage of billions of checks each year. The process of digitizing paper checks and allowing them to be legally used has streamlined the collection and return processing procedures by fully utilizing existing technology. By encouraging image exchange, the costs for accepting checks are reduced for all parties involved. For financial institutions, one of the primary benefits is in the reduced time for settlements. Check 21 lowers the clearing fees by automating many processes that used to be completed by hand. It also is responsible for reducing costs associated with checks that need to be resubmitted. The electronic process reduces the check float, which allows funds to be moved to the vendor faster. This also helps the financial institution find instances of fraud quickly and deal with it effectively. For commercial customers, they are able to receive payments and have access to funds faster. Deposits are convenient and can be made daily. This reduces expenses associated with courier fees.  As a result, deposit cut off times have been extended and banking has been made easier.

Posted in Checks, Uncategorized on Jan 22, 2010