THE CHECK IS IN THE E-MAIL
Puget Sound Business Journal - April 23, 2004
by Eric Engleman
For banker Julie Walker, clearing checks is serious business.
Back in the 1980s, when Walker worked as a float manager at Seattle-based Rainier Bank, she regularly chartered a Learjet - at a cost of $10,000 per night - to move billions of dollars worth of checks across the country to clear them.
"We had to physically transport checks from bank to bank, and it cost a lot of money," said Walker, now vice president for cash management services at Bellevue-based Charter Bank.
Today, many banks still use commercial jets and courier services to ship checks across the country to be cleared.
But a new law is taking the banking industry a step closer to what many see as the wave of the future: electronic check clearing, with a few clicks of the keyboard.
The law is called the Check Clearing for the 21st Century Act, also known as Check 21. It allows banks to replace paper checks with a computer-generated substitute check, starting Oct. 28.
Officials at the U.S. Federal Reserve say they hope it will encourage conversion to electronic payment systems.
If widely adopted, electronic check clearing would dramatically reduce the amount of paper in circulation and, by some estimates, save banks up to $2 billion per year in transportation and processing costs. Banks would create digital images of checks and zap them back and forth over computer lines.
Technology has been changing and has created opportunities to add efficiencies," said Fred Herr, senior vice president with the retail payments office at the Federal Reserve Bank of Atlanta, who is helping to head up the Fed's Check 21 effort.
Check 21 is not mandatory. Banks are not required to generate digital images of checks, but they do have to accept printed versions of those digital images.
Here in the Puget Sound region, some banks are taking a wait-and-see approach to Check 21, saying the software required to generate digital images of checks is prohibitively expensive.
Tacoma-based Columbia Bank is one of those holding back. Unlike larger banks that fly checks across the country, Columbia has a local customer base and doesn't have to send the checks very far to be processed, said Julie Tollkuehn, the bank's vice president of operations.
Columbia only pays to truck checks from Tacoma to the Seattle branch of the Federal Reserve Bank of San Francisco.
"Today it would cost the bank more money to create and send substitute checks than to process the original checks," Tollkuehn said.
Some large national banks are installing the equipment necessary to process checks electronically. Seattle-based Washington Mutual declined to comment on its efforts, other than to say check imaging would reduce the costs associated with courier services.
Many smaller banks use third-party processors to clear their checks and therefore don't need to update their technology.
One of those third-party processors, Fiserv Inc. of Brookfield, Wis., has been installing digital image equipment and will be ready to transmit checks electronically by October, when Check 21 comes into force, said William Saffici, a vice president for Fiserv's item-processing division.
Some local bankers see potential pitfalls for customers with the practice of electronic check clearing.
Customers who are accustomed to their checks taking two to three days to clear may be surprised to learn that the float period has been dramatically shortened.
The banking industry is bracing for a large number of overdrafts, as people come to grips with the quickening pace of check clearing.
"We're going to have a major responsibility to educate our clients about Check 21. It's going to hit the public right between the eyes," said Elizabeth Marx, a senior vice president and Seattle branch manager for Charter Bank.
"People are going to have to be more careful about writing checks at the end of the month if they haven't received their paycheck yet. They're going to have to do a better job of not living on the ragged financial edge month after month."
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