Check 21 Approaches, Part III

This article first appeared in the AFP Exchange magazine, Sept/Oct 2004 issue.

Passing On The Savings
Though banks currently send paper checks back and forth across the country, the high volume of paper checks has kept the per-unit cost to a reasonable level. Initially, the cost of converting a check to an IRD and transmitting it to another bank, or to a processing center to be reprinted as a substitute check, would remain relatively high—given the start-up costs.

As paper check volume falls, however, IRD costs would remain relatively high but increasingly attractive when compared to the costs of doing business by paper check, said Crofoot.

As banks begin to realize savings through greater efficiencies, said Hill, they might be compelled to pass reduced costs to their corporate customers.

Yet, some banking industry analysts predict that banks will incur greater costs because of Check 21 as paper check and check-processing volumes decrease and per-unit costs rise. "It is certainly true that collection times will improve, and that clients may be able to negotiate better [prices]," said Josh Solomon, an analyst for RWC Consulting Group, LLC, of Boerne, TX. "However, it would be foolish of the banks to grant it."

The cost of investing in check imaging technology, educating employees and corporate clients alike would add tremendously to the per-unit cost of processing these checks, he said.

Rather, banks should immediately lay claim to the "reverse float" while rates are low, said Solomon. If there are changes in the fees banks charge, he added, they are likely to be increases.

Others say, however, that banking fees should go down once the industry passes the implementation cost "bubble" brought by Check 21.

A Step Toward E-Commerce
Recent surveys have shown that many corporate treasurers and other banking customers remain generally confused or ignorant of Check 21 and its predicted impact on the financial world.

Yet, the new law represents a major step forward in the evolution of paper-based financial transactions to exchanges that are almost completely handled in the ones and zeros of computers. In the future, despite the growing number of people getting online, analysts predict that by far the vast majority of Internet communication will involve computer-to-computer transactions, a prediction that will certainly be true of the financial world.

"This is a defining moment, a sea change in the shift from paper to electronic," said Hill. While once banking customers were unfamiliar with the ATM, they now routinely use electronic banking and even online banking to conduct transactions, he added.

As the implementation date of Check 21 approaches, banks have begun to image consumer checks which they then offer online, charging a monthly fee to customers who wish to receive more than two or so returned checks per month with their financial statement. Bank of America, based in Charlotte, NC, notified its customers earlier this year of the switch.

Already, retail corporations replacing worn check/debit point-of-sale machines are looking to technology vendors for machines that can combine check/debit processing with check imaging capability, hoping to maximize their investment in replacement technology.

Though analysts say the check, whether paper or electronic, will continue to perform as a strong, reliable instrument in business-to-business payments for some time to come, Check 21 represents a modest step toward a future whose business and consumer payments are conducted solely by electronic means.

Read Part I

Read Part II