Check-ACH Coalition Gives up on Ambitious Plan for Check Processing

A sweepingly ambitious, nearly year-long effort to speed up end-to-end electronic processing of checks has been shut down by its organizers, the victim of multiple operational complications that proved in the end too hard to overcome. The Check-ACH Coalition, a group of some 65 financial institutions, trade groups, and vendors, determined late last week to stop its work toward merging elements of check image exchange and the automated clearing house network, according to an e-mail message to Coalition participants sent on Friday and obtained by Digital Transactions News. At the same time, the group hopes to salvage some tangible results from its months of work, and will continue to seek out ideas from members with respect to how “an additional financial-institution-led effort could gain results more quickly” in moving toward all-electronic proessing of checks, the e-mail says. The message, sent on behalf of the group's executive committee by Robert Alpert, director of risk-advisory services with consultants KPMG LLP, which had been retained by the Coalition to help coordinate its efforts, does not go into detail regarding the reasons for the decision to terminate the group's work. “The Executive Team has determined that further design and analysis of the Check ACH process is not likely to yield significant benefit and that the hurdles identified will not allow for the overall project objectives to be obtained,” the note says. In the months leading up to the decision, however, a number of vexing issues had beset the group as it struggled with the idea of merging two processing systems that many experts saw as incompatible. Reached by Digital Transactions News, Alpert would not elaborate on the Coalition's decision and said a statement could be forthcoming this week from the group, whose members include major banks such as Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co., as well as the Independent Community Bankers Association, a trade group for small banks, and NACHA and the Electronic Check Clearing House Organization (ECCHO), organizations responsible for defining rules for the ACH and for image exchange, respectively. The Coalition's genesis was an effort led early last year by several major banks to speed up the process of image clearing. These banks, impatient with the amount of image-exchange volume that was turning into paper documents authorized by the Check Clearing Act for the 21st Century (Check 21), led a push to use the ACH network, which reaches virtually all bank endpoints, to carry check data of all types. In this way, the thinking went, banks that balked at clearing electronic check images could receive the same transactions as ACH items, probably with some sort of hyperlink or reference to an image of the check stored in a so-called trusted archive. Under Check 21, paying banks are not obliged to clear check images, but rather must only treat substitute checks, or paper printouts of images, as legal tender. By summer, the effort had expanded to include a wider array of participants, and the Coalition was formed, constituted by a number of committees dedicated to working out operations issues, rules, and legal and financial concerns. Soon, however, members of the Coalition ran into a wide range of major issues they were never able to overcome. Chief among these were whether paying banks would be mandated to accept the new transaction type and how and at what cost these banks could access the trusted archives. Indeed, some small banks viewed the Coalition's effort with considerable distrust, fearing it would force them into participating in an expensive, unproven new system when they had already built proprietary archives and had made progress on their own toward 100% image clearing. In its brief life, however, the Coalition apparently learned much from its efforts to tackle these and other thorny issues. For example, late last year, it conducted a survey aimed at discovering what problems banks have with all-image clearing, partly to see how the group might tailor its work to help solve these problems (Digital Transactions News, Oct. 30, 2006). It remains unclear what further work the Coalition will accomplish. The Friday e-mail says the KPMG project team will work with the group's executive committee to “ensure the [Coalition's] work product is preserved for the industry.”