Les Echos
September 13, 2004

American banks go for cheque image

On the 28th of October 2004, a system equivalent to the existing cheque image exchange in France, Germany and the UK, will take effect in the US.
Experts credit the industry for its diligent application of fraud solutions. Going forward, best practice fraud-fighters are expected to rely on increasingly advanced technologies. Success, experts say, will depend on banks' ability to look at their data as a resource to be shared across their own operations, across the industry as a whole and, to some extent, across industries.

The “Check clearing for the 21st century act”, renamed “Check 21”, was voted on the 28th of October 2003 and will take effect end of October this year.

It authorises American banks to exchange images in cheques processing.

In other words, transfers of paper cheques from one bank to another won’t be compulsory any longer to clear the cheque.

A substitute cheque containing a faithful image of the original cheque will be sufficient.

Logistical difficulties

So far the biggest banks had avoided the difficulty of paper exchange by processing data transfers, but they were still asked to deliver systematically the originals.

So not even a third of cheques are cleared electronically.

The events of the 11th September have driven banks to intervene to the American Congress regarding the logistical difficulties in cheque processing. At the moment, banks are spending on average $ 8 billions a year only for cheque processing and transport.

Important savings

For them, as for French banks when the EIC was being settled, the stake is of the up most importance.

In addition to the savings generated in cheque processing, estimated at $ 2 billions a year by Carreker, banks are also hoping in doing so to pave their own way back to the payment market.

In the US, the use of cheques tends to decrease against a growing trend toward electronic payments such as cards, more and more handled by non-banks institutions.

In 2007, a third of the payments should be processed by cheque, against the half today and two-thirds in 2000.

This represents a loss in revenue for banks since they partly live on services attached to cheque-accounts.

According to a BCG study, quoted by Carreker, the payment market represents $ 200 billions in the US and 38% of the 50 first American banks revenue.

Access to image cheque should enable banks to extend their services range. One of them could consist in offering a payment guarantee when enabling the cheque-image creation at the counter or point of sale.

In doing so, the system would enable banks to reduce cheque fraud thanks to a faster exchange of information.

The objective consists in slowing down the progress of electronic payments and the non-banks institutions’ hold on the payment processing chain such as big retailers and SSII.