The Next Phase of Check 21: Taking Back Control of Item Processing
During a recent discussion with a credit union CEO, I was reminded of the pre-Check 21 challenges that many institutions faced. Paper-based check processing brought a unique set of issues ranging from inclearings soaked in a rainstorm (which incidentally had to be ironed dry) to mechanical failures with the giant check sorter/reader machines. Item processing in a paper-based environment was downright messy, and at times, felt like a nightmare. As a result, these problems prompted many financial institutions to outsource item processing to third-party providers that could better capitalize on economies of scale. But the industry as a whole has made huge strides in electronic check processing and I would venture to say few institutions are still relying on paper to clear and process payments.
The fact is it is not the same messy environment, and for many credit unions, continuing to outsource this function is not only illogical, but also costly. Today's electronic environment provides a much cleaner and streamlined system for processing items and most of the hard work is already being completed internally by the credit union before the outsourcer ever receives the file. Consider the following scenario: a member presents a check to the teller. The check is then scanned either at the teller station or in the back office and converted to an electronic image. The CAR/LAR and IQA tests are automatically performed and the exceptions are then identified and corrected. The corrected images are then electronically transmitted to a third-party outsourcer and automatically sorted and distributed to the appropriate exchange system. On the incoming side, all items are now electronic X9.37 files. The entire process, end to end, is 98% automated requiring no additional resources or labor.