ATMs: Imaging Technology Is in Place, but Where's the Mandate?
The expense of upgrading existing ATMs or purchasing new ones with the technology, combined with a lack of government or industry mandate to offer imaging at the retail level, may keep the technology as a primarily back-office application, the executives say.
"The infrastructure for image check transfer and acceptance between institutions is up and running," explained Jim Hanisch, executive vice president with CO-OP Financial Services and one of the key executives responsible for working out the kinks surrounding check imaging.
"But there isn't any real mandate to do it or to take it to the consumer level. All the legislation did was to allow financial institutions to transmit and use check images and to mandate that financial institutions had to accept those that met basic standards. Whether or not a financial institution originated imaged checks was always market-driven," he added.
According to Hanisch and industry sources, Congress began actively considering a law allowing the use of imaged checks as far back as the year 2000, but the question had remained academic and low on the legislative agenda until the Sept. 11, 2001 attacks. That fateful day drew attention to the vulnerabilities in relying on transmitting and clearing paper checks. The nationwide ban on flying put into place for two days immediately following the attacks meant that, for a time, few checks were clearing in anything resembling a timely manner and the economy of the whole country-and even internationally-slowed.
In response Congress, the Bush administration and the financial services industry worked together to craft legislation that President Bush signed into law in October 2003.
Since then, the networking and financial services industries, including regulatory agencies, worked to establish standards for check imaging and construct what Hanisch called the "image superhighway" for facilitating the transmission and use of imaged checks.
He also explained the driving force for check imaging has been economic. "It's become a common industry saying so I can't claim it," Hanisch said, "but no one wants to be the one who puts the last paper check on the last plane to get flown somewhere to clear. That is going to be one pretty expensive check."
But even as the industry hashed out check imaging links between financial institutions and the Federal Reserve, the process of moving to check imaging stalled at the retail level. Consumers have mostly experienced the impact of check imaging in their statements and, in many cases, have experienced quicker check clearing. Relatively few institutions have implemented check imaging at the ATM or teller.
"I think one factor is definitely the cost of upgrading existing machines," said Mark Smith, a senior manager with Triton Systems, an ATM manufacturer, "but another is that there really aren't lots of consumers demanding that they be able to start imaging checks at ATMs."
ATM deposits have long had the reputation as being something many ATM users say they would like to be able to do, but then only a small portion actually use it; Smith indicated that relative weak demand from ATM users has made it hard for financial institutions, especially smaller ones, to justify the expense.
Hanisch remained optimistic that the economics would favor including check imaging at ATMs eventually, pointing out that even if a credit union images checks and saves money on part of the cost of check processing, it still bears a cost if it doesn't image the checks at the ATM.
"There is the cost of picking up the checks, usually daily, opening the deposit envelope and processing them, et cetera. It's a significant cost," he said.
As an ATM manufacturer, Smith acknowledged that his industry would benefit if there was some sort of government mandate to offer more check imaging at the ATM, but beyond industry interest, Smith said, he worried there was no further government interest in check imaging.
He explained that nature abhors a vacuum, and he feared a vacuum left on the question of check imaging at the ATM, likening it to when the card industry giants set up a standard for card security that merchants and financial institutions must meet without any real input into its development.
"Do I want to be put in a position where I am told I have to manufacture and market a product to specifications that my customers might not have signed onto or be required to meet?" he asked.
Other industry sources pointed out that the ATM industry passed a similar hurdle when industry leaders mandated a switch over to higher encryption technology that required existing ATMs be upgraded or new ATMs purchased. In that switchover the leaders of the change, primarily Visa USA and MasterCard International, steadily pushed back deadlines to let more financial institutions spread out the cost of making the change.
However, Smith countered that that those changes had not cost as much to make, and there was consensus on the need for the greater encryption. It's unclear, he noted, that there is an equal consensus yet on check imaging at the ATM.