When Life Hands You A Check...
You've all seen the commercial...the checkout line at the local nursery is moving smoothly and quickly, the sun is shining, plants are blooming, people are smiling--suddenly a customer wants to write a check for payment. Immediately the scene changes--plants wilt, birds stop singing, the sun goes behind a cloud...you get the picture.
The commercial is all about using Visa as a quick payment vehicle. But, let's be honest. Consumer habits are hard to change. Yes, we've all seen the data that says electronic transactions (credit card, debit card, ACH) are on an upward trend and check volumes are declining, but these reports don't tell the whole story.
The decline of the check as seen in charts, such as the one here resulting from McKinney & Company research, are based on checks that enter the clearing system as physical items to be routed using MICR data through a payment structure that has been in place for more than a half century. What is not represented is the number of checks consumers still write, but which are truncated early in the payment cycle and converted to ACH transactions for clearing. Even online bill payments often get translated to a check transaction, albeit one check for many payments to the same vendor.
Thanks to the impetus created by the Check Clearing for the Twenty-First Century Act ("Check 21" to you and me), checks are being truncated earlier and earlier in the payment stream. What started as technology for branch capture is now pushing check truncation to the natural person or business client of the credit union. Today, even a consumer at home can make a deposit by scanning a check on his or her "all-in-one" printer/scanner (or any number of other low-end scanning devices), interfacing with the credit union's home banking site. I've even seen checks scanned on a business card scanner that created a compliant image for clearing.
The benefits to credit unions for early truncation are immediate and obvious--no more merchant window tying up a teller to balance bulk check deposits; no more tellers trying to post bank-by-mail deposits in between customers; faster credit to consumer and merchant accounts; and, more time for cross-selling and member service at the credit union branch. Today most of these transactions are cleared by images, but with the latest NACHA rules allowing BOC (Back Office Conversion), the technology has been developed at the merchant level to use the same check-scanning device to convert the transaction to either ACH or image for clearing.
Why all this technology surrounding a declining payment instrument? It's as I've said, consumer habits are hard to change. Plus, there is that particular segment of the population that still likes to write checks and has money to spend. Yet, at the very same time, there are those consumers who want the payment stream to be efficient, giving them availability for deposits as quickly as possible.
Adoption of image exchange and clearing has been exponential since the passage of Check 21. According to the CheckImage Collaborative, "formally Fed/ECCHO," 24% of checks and 30% of total check dollars were presented for payment by image (June 2007 data) and the percent of images converted to IRDs (Image Replacement Documents, or substitute checks) is on the decline. Further, the number of image receiving endpoints grew more than 100 percent between June '06 and June '07. Now more than 6,400 financial institutions, or approximately 39 percent of all U.S. institutions, are exchanging and clearing by image. Since the passage of Check 21, almost $8 trillion has been cleared via the image-enabled process. Based on the 2004 Fed payment study, this amount is greater than the sum of all debit card payments ($.6 trillion) and all credit card payments ($1.7 trillion).
With the Fed's continued consolidation of their check-processing infrastructure (down from 45 check processing sites to 18 this year, and more to come) the case to convert to an image-enabled early truncation model is becoming more and more compelling. The windows for delivery of paper checks to consolidated capture and clearing sites are compressing, and the cost of clearing paper checks is increasing. Not to mention the float! Image exchange offers the benefit of basically 100 percent immediate credit, while credit unions that have to holdover work due to distance from processing locations, lose a day of interest on those dollars.
In today's environment, making the clearing of member check deposits as efficient and streamlined as the electronic transactions that the Visa commercial depicts is an imperative to remain competitive. Investing in this technology will help you continue to be of value to your members.