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How can credit unions enjoy the greatest benefits from Check 21? That’s the question facing our industry now that Oct. 28 has come and gone. Last summer, hardware manufacturers, image exchange networks and service bureaus flooded the media with visions of the future. Seminars explained substitute checks and expedited re-crediting, then shifted focus to image processing, branch capture and fraud detection. Now reality sets in. The gap between initial euphoria and emerging reality hinges on one simple fact – many financial institutions don’t use check images today! That means all of us will process a lot of paper with an increasing volume of images. Timing the switch to mostly image depends on a question posed at the last BAI Transpay conference: “When will half of all transit items be exchanged?” Transpay’s exchange experts answered the above question: “mid-2006.” While we wait, here are three important facts: Image exchange networks will not immediately dominate the check processing world. The switch to image will be fitful while large banks sever their ties to paper and force other institutions to receive images. Substitute checks will grow in volume as some institutions migrate to images and others cling to paper. When more institutions use image than paper and the cost of image falls below paper, substitute check volume will fall. Branch image capture devices will replace microfilm at an accelerating rate, which will drive the increase in transit image volume. So where are the golden nuggets in Check 21? At this point, there are three contenders for appreciable benefits: check image aggregators, branch capture, and workflow redesign. Here they are in greater detail: Image Aggregators – The most accessible Check 21 benefits will come from aggregators of check images – most likely your outsourced check image processor. Because they move a greater volume of items through the payment system, they can find better pricing than most credit unions. Because image processes are faster than paper, your institution stands to reduce fraud and improve funds availability. At this point, the quality aggregators should have well-developed Check 21 plans to leverage the value of image processing. The advantage to the outsourced image approach is that it costs very little beyond charges for setting up image settlement and ongoing image cash letters. Basically, as soon as your image outsourcer is ready for image exchange, so are you. One caution – if your current item processing mechanisms need upgrades for image exchange, do a thorough ROI analysis. The value of these machines is declining significantly. To deliver real savings, your processor should have sufficient image volume and robust relationships with several image exchanges. This will enable the processor to route the institution’s images to the lowest cost exchange and pass along the cost savings to your institution. In addition, the processor should support all the components of image exchange, particularly the ability to: Capture images of all transit and in-clearing items with a searchable archive of all imaged items immediately following capture. Export image item information to an image cash letter with totals of all items captured. This will help teller, check and branch balancing while expediting the check clearing process. Provide proof services for imaged items. Process an incoming image cash letter with settlement of image and non-image work. Return image items. Produce image, traditional paper, and e-statements with substitute checks. Keep in touch with your check processing vendor to see what’s coming and when. Also, keep an eye on your vendor’s image volume. The more images they process, the greater the savings to your institution. Branch Capture – Branch capture devices can improve an institution’s operational efficiency and help reduce fraud. But more than image aggregation, branch capture represents an investment in time, money and expertise to properly handle transit images. Capturing images at the first point of presentment has potential advantages in reduced encoding and transportation costs as well as increased funds availability. However, branch capture raises important workflow issues, particularly how tellers will capture items during a busy day; balance the incoming check images, and review high-dollar and suspect items. To answer the busy teller issue, equipment vendors suggest a back-counter solution where the tellers scan items in their free time. Long term, however, the promise of presentment clearing won’t materialize if the items wait to be scanned. More likely, the scanning task will shift to your tellers. Software vendors have answers to balancing scanned check images, checking high-dollar items, and examining fraud suspects. But these add-ons are costly and need to integrate with current processes, particularly the teller and item processing applications. When considering a branch capture solution, think about the following: Does the proposed solution replace all current processes? Does the proposed solution integrate with your current teller system so that teller transaction efficiency increases, teller balancing accelerates and transaction accuracy increases? Does the proposed solution integrate with your current image processing system so you can research items as soon as they are scanned? Does each branch have the communications bandwidth to accommodate frequent check image transmissions? When can your institution reasonably expect a return on its investment? Workflow Redesign -Workflow changes will deliver the greatest Check 21 related efficiencies. But since this is a transition period from paper to image, the workflow changes will come in stages, culminating in the full benefits of presentment clearing. While we’re all waiting, your institution should perceive Check 21 as an opportunity to integrate branch operations, IT, compliance, risk management, and item processing. Consider forming an “Image Team” from staff in all areas. With a thorough understanding of the current check process, the Image Team can quickly evaluate proposed changes in process and make informed recommendations to the institution as a whole. In the next few years, your institution could reduce staff assigned exclusively to check processing due to greater reliance on front end systems to capture the items. Capture quality and accuracy of the automated encoding will be critical to your cost savings. Be relentless! Your goal should be integration of captured images with your current workflow, particularly teller, archive, clearing, posting and statement rendering. Expect that future ATMs will be equipped with scanning devices as well, making it possible for your clients to feed checks into the machine, which will scan them and transmit the MICR line plus image amounts to your image processor. Finally, consider interim solutions, such as back-counter capture, since it requires no changes to teller systems and gives your institution and the industry valuable time to adjust to the image world before taking the final steps toward a checkless society. And remember the name of the Check 21 game is economics. If it doesn’t pay, don’t play.

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