Check 21 Opens Electronic Payment Processing Doors
Reflecting on 2004, it’s evident that technology opened new doors by strong-arming its way into the planning minds of many.
Firstly, it’s apparent that what some have called “the most significant change in US banking over the last 50 years” did indeed create a stir. This change, which became effective on October 28, 2004, is known as the Check Clearing for the 21st Century (Check 21) Act. From a regulatory standpoint, Check 21 requires a US financial institution to accept substitute checks. Although there wasn’t a regulatory mandate for a major change, the question of necessity weighed heavily. Check 21 supports image truncation and image exchange by requiring non-participating institutions to accept substitute checks. This created the opportunity for dramatic cost reductions in transportation, float, reduced item passes, and encoding.
Secondly, as the Accounts Receivable Conversion (ARC) initiative increasingly becomes accepted, its influence encourages and challenges organizations to take a closer look at their payment processing environment.
ARC is the fastest growing segment in Automated Clearing House (ACH) payments – growing over 500 per cent, comparing third quarter 2003 to third quarter 2004. ARC is the conversion of ABA routing and account information on certain eligible paper checks into ACH transactions that are transmitted through the ACH system. ARC transactions are governed by NACHA – ACH regulations and offer great efficiencies in item processing, reduced paper handling, increased access to deposited funds, reduced transit item deposit costs, reduced credit risk exposure and overall reduction in the volume and labor associated with processing return items.
As you can see, 2004 not only was a year of technological testing, but it also established the groundwork for the next big shift in how payments are collected.
Let’s look at how the two electronification changes work together and what payment capture changes are occurring as a result. As a treasury manager, some very exciting times in providing paradigm-changing solutions to your corporate clients are underway. Your ability to service your customers with solutions enabled by electronic clearing can eliminate your geography concerns for physical presence for paper movement. Regional restrictions no longer apply; instead, the global payment competition is dawning.
By enabling the back-end clearing process into an electronic solution, distributed solutions eliminate the need for physical paper to flow from capture to clearing. By removing this barrier, capture can now occur anywhere payments are received, and as close to the payee as possible.
Imagine the elimination of physical overnight mail packages from agents/broker branches to home office receivable systems. Imagine corporates who outsource their payments having the ability to image and receipt and still maintain a single central posting and archive from their outsource provider.
Imagine cashiers receiving walk-in payments for taxes, licenses or other services and improving their cash handling, lessening their cash handling risk and combining payment silos into one receivable update and archive. Imagine, as a consumer, the ability to receive an image receipt at an ATM/payment kiosk showing a copy of the check payment coupon and payment data all in one form all on the customers payment time table. The good news is you no longer need to imagine the possibilities. Your ability to utilize such options and reap the benefits is now a reality.
Furthermore, organizations are beginning to recognize how a distributed capture solution can complement its payment processing workflow and bottom line revenues. Corporate customers benefit with improved funds availability, increased speed of returned checks and later deposit cut-off times. Other benefits include the ability to:
Identifying scalable and reliable technology, processes and methodology aligned with an organization’s corporate goals and continued support are the critical keys to successfully unlock the doors to electronification. Specifically, a provider offering fully integrated solutions, a strong and successful association with NACHA and proven ARC transactions, and reputable strategic partnerships are characteristics to a strong foundation to an organization’s successful adoption of electronification. Consider the possibilities and step over the threshold – electronification is waiting for you.