How the Helena Project may have a major impact on the way credit unions operate in the future

There is an experiment taking place in Helena, Montana that may determine how credit unions will operate in the future. The Helena branch of the Federal Reserve Bank of Minneapolis is conducting a pilot in electronic check clearing. The electronic check clearing or collection process refers to capturing the MICR line information from the bottom of checks and transmitting this data directly to the financial institution on which each check is drawn. This can reduce expenses and increase available funds by clearing checks faster. Late last year, the Fed launched an EPIC pilot project at the Helena, Montana branch. Ted Umhoefer, senior vice president of the Minneapolis Fed, said, "Our objective is to provide an infrastructure to support a movement toward electronic (check) presentment. It's being looked at as a test-of-concept across the Federal Reserve System." To understand what the Federal Reserve Board is doing in Helena, we need to look at how the use of imaged share drafts can improve the existing paper-based payment system. First, let's consider the difference between Electronic Check Presentment (ECP) and Electronic Presentment Image Check (EPIC). ECP is the electronic transmission of MICR line information to the Federal Reserve, which is followed later by the paper check. EPIC is the transmission of the MICR line information and the image of the check. The goal of both these efforts is to reduce the processing time to clear items at the Federal Reserve and reduce check handling and transportation costs. In short, the faster transit items are cleared by the Fed results in less "float" for your credit union. How much can your credit union save by reducing turnaround by one day? Up until now, the delays of implementing ECP and EPIC have been attributed to Y2K concerns, regulatory uncertainties about the legal status of electronic documents, and consolidation in the banking industry. However, in December, the Federal Reserve modified Regulation CC, which governs the availability of funds and collection of checks, allowing banks and credit unions to use electronic images instead of paper returns to pilot electronic return systems. According to a recent article in Corporate EFT, Southwest Mountain Federal Credit Union (SMFCU) has used EPIC since October 1, 1999, and has helped the credit union get returned items from the Fed a full day earlier. Donna Kostelecky, vice president at the credit union, said SMFCU was also saving money on retrievals. Under the old system, financial institutions paid 85 cents per photocopy request. Now, under EPIC, copies of items are free for up to three days. "I would estimate that in 1999 banks spent about $50 million on ECP efforts, and that it will grow into the 20 percent range over the next year," according to Robert Hunt, a senior research analyst at Tower Group. Improving float not enough? How about the impact of imaging on customer service? Credit unions are now in a position to use technology that banks have been developing for years. But how? Whether items were captured electronically, either in-house or at a service bureau, credit unions have eliminated a bulky Microfiche process and thereby set in motion the ability to research and handle member share draft questions while the member is still on the telephone. Copies of specific share drafts can be viewed on the PC screen, printed out, and faxed or mailed to the member if necessary. But why produce more paper when many credit union members have e-mail (and more are sure to follow)? The image of the share draft could be e-mailed. Eventually, members will be able to access images of share drafts through the credit union's Web page using secured access! This same technology can be used to improve member statements. Stepping out of the paradigm, isn't it the purpose of statements to provide members with enough information about their transactions so they can reconcile their accounts? Imagine the credit union member receiving a statement that included picture images of share drafts, thereby reducing calls from members regarding their statements. Taking this a step further, credit unions will be able to offer members electronic statements. This would eliminate printing and postage costs altogether. It is possible that credit unions willing to invest in this technology will increase membership and extend their service level beyond banks in their area. There are several positive steps that credit unions can take: * Include EPIC in long-term technology planning, * Take a look at reducing item-processing costs, and * Identify opportunities to improve member service and attract new members by augmenting existing processes with commercially available technology. In a few short years, we may look back at the Helena project not as a faster way to process transit items, but rather a turning point in improving relationships with members by providing more timely information.