Check 21: Big Cost, Big Profit Opportunity

Creating and moving check images across banking networks now that President Bush has signed the Check Clearing for the 21st Century Act into law is likely to cost banks a great deal of money–but most are likely to find it worth their while. Popularly known as Check 21, the law doesn't mandate check truncation but encourages it by giving check images the same legal status as paper checks. Proposed originally by the Federal Reserve and signed by the president this week, the law goes into effect in a year, and banks that can afford it are working on internal workflow systems to take advantage of it. James C. Harris, principal for payment systems at Cincinnati-based Unisys Corp., an imaging vendor, says he has heard of some banks gearing up from scratch spending as much as $100 million on the necessary imaging and networking technology; for large banks that don't need a bottom-up overhaul, he says, the tab runs more like $5 million. “We sized the market in billions of dollars” to get ready for Check 21, he says. That's a lot of money, but the payoff can be huge. Harris says he has heard of estimates that banks can generate $1 million in monthly profit for every $10 billion in assets they hold, mostly through check-processing cost savings. Similarly, a study commissioned by NetDeposit Inc., a Salt Lake City seller of check-imaging software, shows that truncation cuts the cost of a check deposited at a branch from 32 cents to 10 cents, while reducing settlement time from three to four days to one to two days. Still, not all banks can afford to install the gear they need to take advantage of check truncation. For these institutions, mostly community banks, the check image would be presented as a so-called image replacement document, or a paper copy of the image. Unisys's Harris figures it will take three to four years for all banks capable of adopting the technology to fully install it.