Many Clients Still in the Dark on Check 21 Will Wade

American Banker, May 19, 2004

Following are excerpts from a May 19, 2004 American Banker article, which focuses on the lack of awareness of the Check 21 law among bank's corporate customers. The article also discusses how a few banks are seizing the opportunity to educate their customers on Check 21 to capture new business and gain market share.

For the banking industry, this is the year Check 21, a long-awaited law, will finally take effect, and gearing up for this change is a top priority at many banks.

For a substantial majority of banks' corporate customers, however, the story is different. Many have no idea financial institutions are working to transform the process of settling checks to usher in a new era of faster, cheaper, and more efficient item processing.

"I think there hasn't been much public information put out there, and the corporate customer base is certainly unaware," said JoAnn Bourne, an executive vice president and the head of the commercial deposit and treasury management group at Union Bank of California. "We definitely have noticed that public awareness," of Check 21 "is fairly low."

Union Bank, which is mostly owned by Mitsubishi Tokyo Financial Group Inc. is one of several companies — a group that includes banks and vendors — attempting to educate their customers. These companies say they hope to gain market share from competitors that have been so focused on updating internal systems that they have neglected to communicate with their customers, either about potential problems or eventual savings.

"It's absolutely an opportunity for us" to capture new business, said Mary Jane Kelley, the director of treasury management at Fifth Third Bancorp in Cincinnati.

Customer awareness is not uniform, she said. "Consumers knew nothing about it, and small businesses knew nothing about it," at the end of last year, when Fifth Third began talking about Check 21 to customers. "But large businesses knew a fair amount. They knew what it was and how it could impact them."

Those observations match the results of a survey Greenwich Associates of Connecticut conducted in March and April of nearly 1,200 companies with annual revenues of between $1 million and $500 million. Only 25% of the small businesses (those with revenues of $1 million to $10 million) and 34% of the midsize ones (revenues of $10 million to $500 million) had even heard of Check 21.

Steve Hill, a senior principal with the Dallas imaging technology provider Carreker Corp., said part of the reason banks are not doing more is that many of them are still determining their own strategy for implementing Check 21 this year. Carreker has been running a series of workshops for banks this year, explaining to executives from every part of the bank how the law may affect different operations, and helping them develop a companywide strategy.

"A lot of the banks have communicated with their customers in a limited fashion," often by speaking directly to the cash managers at their biggest corporate clients, "but we've seen very few across-the-board enterprise-level communications," he said.

Ms. Bourne said Union Bank has also been running Check 21 workshops and has gotten a very strong response from customers clamoring for information about the transition. As these customers learn about how the law will change their practices, they are coming to the bank looking for new banking applications and asking about potential changes in their fees.

She expects that interest to yield some opportunities for her bank. "Banks that can figure out how to share the cost savings with their customers will have a huge competitive advantage."

Ms. Kelley agreed that some potential customers would be interested in being courted by a bank with a comprehensive Check 21 plan if their own banking partner had done a poor job of explaining the potential benefits. "This is an opportunity for us to make sure we are out in front of prospective customers."

Ms. Bourne predicted that some companies, and many consumers, may be taken unaware once banks start to phase in Check 21 applications, especially when people realize they can no longer see their original checks.

For example, supermarkets, which deal with a large number of checks, typically have return-item practices in place that involve handling the actual paper. "What happens if they want to collect on a bounced check and the consumer wants to see the original? The consumer awareness issues, we think, will be huge," she said. "Corporate customers really need to think about how they will change their payment processes if they don't have a paper check anymore."