presentation title: presented by: delivering on the arc and check 21 promise tom kettell vice...
TRANSCRIPT
Presentation Title:
Presented By:
Delivering on the ARC and Check 21 Promise
Tom Kettell
Vice President, Marketing
RDM Corporation
Monumental shift in thepayments landscape
Physical Items
Fed/Local/RegionalClearinghouse Paying Bank
Bank Lockbox
Bank Lockbox Clients
In-House Lockbox
Internal Lockboxes and Third-Party
Lockbox Providers
Bank/Regional Sites
Agent/Branch Deposits
Point-of- Payment Collections, Drop Box Payments, Low-volume Lockbox, Route Collections
The Transformation fromPhysical to Virtual
ARC SystemFed/EPN/
Visa
Physical Items
Optimized Items, ACH (POP/ARC) or IRD/ECP
Fed/Local/RegionalClearinghouse
Paying Bank
Electronic Bank Lock Box
Customer In-House Electronic Lock Box
Bank/Regional Sites
ECP/IRDs Fed/ECCHO
The Transformation fromPhysical to Virtual
Agent/Branch Electronic Deposits
Point of PurchaseFace to face
POPSubstitute CheckImage Exchange
Walk in payments – Distributed LocationsDrop Box
ARCSubstitute CheckImage Exchange
Mail in payments – Centralized LocationsLock Box
ARCSubstitute CheckImage Exchange
Channel Proliferation
ARC, Check 21, & Image Exchange
ARC– Permanent rules established in March 2003– Convert consumer checks received through U.S. Postal Service
or drop box into ACH debit transaction– Business/Corporate checks are not eligible for conversion– Notice = Authorization– Major Adoption: 2.3 billion transactions in 2005est.
Check 21– Enacted in October 2004– New legal instrument called a substitute check– All checks (except checks drawn on foreign bank) are – eligible– Foster innovation in the check payment system without
mandating receipt of checks in an electronic format– Is not image share/exchange
Check 21–Example le
INTERMEDIARY
IMAGE
PAYING BANK
BOFD
CHECK
IRD
Compared to
INTERMEDIARY
PAYING BANKBOFD
CHECKCHECK
CHECK
So what is a Substitute Check?
Image Exchange–Example le
INTERMEDIARY
IMAGE PAYING
BANKBOFD
CHECK
Compared to
INTERMEDIARY
PAYING BANKBOFD
CHECKCHECK
CHECK
IMAGE
Benefits of Check Electronification
• Faster returns processing
• Fraud reduction
• Faster collection
• Reduction of processing costs
• Possible float gains
The Numbers
FRB - Number of Checks Paid in 2000 and 2003
Source: 2004 Federal Reserve Payment Study
Payments Growth Continues as Check Volumes Decline
As Check Volume Declines the Number of Payments Increases
Source: 2004 Federal Reserve Payments Study
The Pricing Dynamic
Source: Federal Reserve. Compiled by NACHA The Electronic Payments Association
Check Electronification is Growing Even as Check Volume Declines
ACH e-Checks Continue to Experience Double Digit Growth
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2001
2002
2003
2004
Source: NACHA
Growth of ACH e-Check Entries
Source: 2004 Federal Reserve Payments Study
Check 21 has Fostered Change
and Significant Opportunities
Check 21 – First Nine Months
• In June 2005, processed 16.7 million items through Check 21 services - 75% deposited via ICL
• All were converted to substitute checks for presentment
• Peak day: 1.3 million items worth $12.8 billion ($10,000/check)
• FedReturn volume averaging 25,000 items/day
Federal Reserve Experience
Industry Concerns Check 21
• Confusion between Check21 & Image Exchange
• Multiple Collection Strategies to Consider
• Pricing Questions
• Unproven Process
• Liability for Image Quality? Where should that be placed?
• Other forms of non-cash payment may be less costly
– Credit/Debit Cards
– Automatic Debits & ACH
• Returns Process with Substitute Checks is Still Being Refined
Check 21 - The Lighter Side
Suze Orman Speaks Out
How the New Check 21 Law Affects You Check It Out: New Banking Law Soaks Consumers
Any civics teacher looking for a glaring real-life example of Congress listening to lobbyists and forgetting about we the people need look no further than the new "Check 21" law that kicked into action in late October.
In a big fat wet kiss to the banking industry, Congress has authorized electronic processing of all the personal checks you and I write, meaning banks no longer have to physically exchange checks with each other before they take the money out of our accounts. That cuts the processing time down from a few days to as little as a few hours. One industry group estimates the faster processing will save banks $2 billion a year in administrative costs. It's a lot cheaper to zap checks electronically to each other than to deliver them by train, plane, and truck.
I'm all for efficiency, but surprise, surprise, there's absolutely no provision that requires one penny of that savings to be shared with consumers in the form of lower fees. Worse, there's a good chance this new bill is going to end up costing a lot of us a bunch of money. Because our checks are clearing so much faster, consumer watchdogs predict that there is also going to be a barrage of bounced checks flying through the system, further boosting the bottom line of the banks at the expense of our wallets.”
“…banks no longer have to physically
exchange checks with each other
before they take the money out of our
accounts.”
Check 21 - Lessons Learned
• Supporting infrastructure works
– Some challenges, but electronic file movement and substitute check printing has been successful
• The need for substitute check printing and transportation will delay the full realization of the cost efficiencies associated with image clearing
– Many financial institutions will continue to rely on paper presentments until they can reengineer back office processing
• Controls in Place for Double Posting– Duplicate Items – Safeguarding from the double post
• Updating procedures and best practices to reduce double postings
– Corporate
– Financial Institutions
– Fed
Image Exchange
The Future of e-Check Payments?
Image Share/Exchange
• Design
• Development
• Testing
• Agreements
• Pilots
• Operating Rules
• Lessons Learned
• Validate Assumptions
• Vet out Risks
• Modify Controls
First Comes the Plumbing
Image Share/Exchange
• Product Offerings• Image Receive • Image Send• Return Integration• Exceptions Management• Controls• Settlement• Reporting• Pricing• Deadlines• Availability• Support
Then Comes Product
Half of Banks Choose Image Exchange Even at 10% Cost Premium
Banks Who Would Choose Image Exchange if...
Source: Global Concepts, Inc.
Billers Will Stay with ARC Until Image Exchange is Cheap / Available
Billers Who Would Choose Image Exchange if...
Source: Global Concepts, Inc. Note: 34% of Billers “Don’t Know” at what point they would choose 100% image exchange. It’s still a relative unknown.
The Payments Convergence
Business Case for The Payment Convergence
• Can you achieve 100% electronification
• Will Image Share/Exchange ever become ubiquitous?
– When will critical mass be achieved?
• Payback period (in a declining check volume market)
• How do you value float (Fed Funds, Prime Rate or Cost of Funds)?
• Assumptions: Are they accurate? How do you validate?
Business Case for The Payment Convergence – cont.
• Reduced banking fees, accelerate availability, and reduce operational costs
– Must stage benefits according to when products evolve
– Concentration of funds / process (reduced endpoints)
– Returns automation/consolidation
– Concentration allows you to leverage remaining volume for discounts
– Substitute Checks are expensive
• Are a means to an end!
The Future of Check Clearing
• The Projection– ACH check
electronification and Image Exchange will run parallel and at par in the short term
– 6 to 10 years from now, Image exchange will generate the most activity significantly reducing paper checks
– ACH and Check 21 combined, accelerate check electronification
Source: The Forrester Group
Remote Capture, Electronic Deposit . . .
… going beyond an automated drop-box . . .
Impacts of Check Electronification
• Increase funds availability, better cash forecasting– Electronically deposits all checks to company’s account next business day, providing faster
collection and faster notification of returned entries
• Reduced number of return items– Electronic debits typically post before checks, resulting in more items clearing on first
presentment
• Automate and accelerate return item processing– ACH provides early notification of return items, carrying deposit location identifier
– Immediate or delayed re-presentment of returns
• Does not require consumer behavioral change
• Reduce or eliminate local depository accounts– Fewer accounts to reconcile, reduced bank fees, elimination of cash concentration costs
– Simplification of reconciliation of remaining accounts
• Reduce labor and check processing costs– Eliminate check deposit preparation
– Decrease deposit transportation charges and check float
Case Study | U.S. Treasury
The U.S. Treasury’s Financial Management Services division and the Federal Reserve Bank of Cleveland needed a paper check conversion solution that could be deployed to all agencies
Had to support a highly distributed network of approximately 200 agencies ranging in size from 1 to 1000s of locations.
Had to be scalable (future volumes could be large) Had to be robust (e.g. Army installations) Had to be flexible (Variety of agency specific needs) Had to be secure (Government – Army, Air Force, IRS, etc) Had to be very easy to use (remote locations, minimal training)
Case Study | U.S. Treasury
United StatesPatent &Trademark OfficesIRSDECCA (Military base stores)& other agencies
Germany, Belgium,Bosnia, KosovoMilitary Bases
Qatar,KuwaitMilitary Bases
Singapore,KoreaMilitary Bases
Case Study | U.S. Treasury
FRB DallasArchivalACH ProcessingVerification Database
Local Verification UpdateFrom Main Database in Dallas
Daily https TransmissionsImages & Transaction Data
Case Study | Municipality
Tax payments, user fees, recreation registrations, fines, publications
Can have consistent or different rules bases across all offerings of the municipality
Benefit from later cut-off times allowing capture in evening (e.g. recreation, outdoor events)
Benefit from time savings in taking deposits to bank
Need for multiple ways to accept payments – including remote channels
Case Study | Insurance Company
Significant volume of walk-in payments at multiple branch locations
16% - 17% of all payments are walk-in or mailed to the branch location
Desire to improve the check handling efficiencies at the branch location
Desire to improve float position
Desire to reduce deposit accounts
ACH non-eligible (business checks, money orders, convenience checks) and cost structure for equipment for large number of locations caused challenges for ARC-only
Comprehensive Check Electronification Platform
• Off-Premise cash letter (customer lockbox)• Distributed payment capture (drop box)• Person present• Two models to choose from
– ASP model – faster time to market with little to no capital investment
– Enterprise model – longer implementation times and requires large capital investment and on-going management
• Supports ACH, Paper Draft (traditional and substitute check), and Image Exchange initiatives
• Consistent rules base across multiple touch points of presentment– Provides a consistent customer experience
• Basic remittance capabilities – scanning remittance coupons for decisioning– Can scan multiple coupons and multiple checks
Planning for the Payments Convergence
ODFI
Modem Banks
Internet (ISP)https
Internet (ISP)https
Lockbox Retail POS locations(terminal-based)
Planning for the Payments Convergence
Presentation Title:
Presented By:
www.check21solution.com
Delivering on the ARC and Check 21 Promise
Tom Kettell
Vice President, Marketing
RDM Corporation