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 Check
21: Get Ready, Change is Coming!
by Michael Reagan, Senior Principal,
Carreker Corporation
Reprinted with permission from The
Point, a SWACHA Publication
| "Check
21 will impact anyone associated
with the bank that has occasion
to examine a check." |
Some in the industry have likened
Check 21 to Y2K, given the impending
deadline and broad-reaching implications.
Whether or not Check 21 will be as
extreme as Y2K remains to be seen.
But there is one certainty, after
October 28, 2004, anyone who has
a need or desire to see, feel or
touch an original check will no longer
be able to rely on doing so.
The certainty of having access to
the original check will become a
thing of the past, as the original
check will be replaced by the substitute
check at the whim of any bank that
handles that check. Furthermore,
it is anticipated that both paper
forms of the check (the original
and the substitute, a k a the IRD
or image replacement document) will
eventually be supplanted by image.
While the timeline for all this change
is subject to debate, the change
is a given.
So what does all this change mean
for a bank? And what about those
who think that they don't have to
change as a result of Check 21? The
fact of the matter is that the law
requires little change on the part
of the bank, and the investment to
be compliant with the letter of the
law should be minimal. Substitute
checks must be accepted, some customer
notification will be required and
some new customer re-credit provisions
will need to be implemented. So the
banks will have a responsibility
to implement some procedural changes
to recognize and handle the new payment
instrument that will become legally
permissible on October 28th.
Preparing for Check 21
So how does a bank prepare itself
for all these changes? Understanding
how the changes of Check 21 will
impact the bank is the first critical
step in preparing for Check 21.
And this is a critical step for
every bank regardless of whether
the bank is large or small, or
whether they process in-house or
outsource.
Check 21 will impact anyone associated
with the bank that has occasion to
examine a check. This includes, but
is not limited to, any customer using
a bank product that provides them
with checks (DDA, home equity, credit
card courtesy checks, etc.), as well
as bank personnel from branch and
customer service, back office operations
(research, adjustments, statement
rendition, et. al.), risk management
and compliance, legal, product management,
etc.
Each bank should assemble a group
of employees who represent this wide
range of constituents, as well as
their support organizations, and
go through a methodical process of
identifying the impacts of the Check
21. Depending on the size of the
bank, this could be a group of 5
or 95.
In such an exercise, each bank will
uncover things that are unique to
it, and there are some concerns that
will need to be addressed by every
bank. Reconciling the letter with
the spirit of the law, recognizing
what it means to any one particular
bank, and then plotting an appropriate
course of action can be a daunting
assignment, particularly if you only
have a few months to do it. The following
five pointers are provided to help
in this endeavor.
- Set
the bank's direction. If you don't
know where you're going, any road will
do! In order to minimize the downside
and leverage the opportunity of Check
21, each bank must establish its own
path toward the future. The position
of bank management needs to be articulated
before the detail work can be done.
Among these will be the bank's plans
for products and customers most affected
by Check 21, the bank's approach to
migrating to electronic movement of
the check, the bank's position regarding
risk, et. al.
- Be
sure you follow the flow of the
check to its final resting place. Since there will be no guaranties
that the originally authored
check will be accessible to anyone,
it is imperative to recognize all
those parties that today look at
an original, or a replication of
any original, that the bank processes.
This could be a bank employee
in the branch or the back office
who needs to see that item within
the first 12 hours to determine
its negotiability or someone who
needs to review if a claim is made
against it thirty days, or an investigation
seven years later. Processes need
to be established for the alternative
representation of the check. This
would include people handling exceptions
and returns, those doing items
for fraud review, research and
adjustment personnel, statement
rendition staff, etc.
- Recognize
that change will create confusion. And very few people like
confusion, particularly where their
money is concerned. Know your customers,
and know the current agreements that
you have in place with your customers.
From that knowledge, and with the
bank's direction clearly defined,
a bank can begin to manage the expectations
of their customers, addressing their
concerns with alternative products
and services where necessary.
- Make
sure you look at the glass as
half full. In the course of assessing
your state of preparedness for Check
21, it is too easy to dwell on the
changes that need to be made and
the burden that accompanies those
changes, and not seize on the opportunity
that can be realized by change. These
opportunities could be found in reduced
overall transportation cost, streamlined
operational costs, expanded processing
windows, accelerated collection of
funds, increased service fees, mitigated
exposure to fraud, etc.
- Prepare
to manage the cost of change.
The opportunities that come with
the changes from Check 21 will result
from the morphing of the check from
a physical item to an electronic
and digital entity. Accordingly,
the unique infrastructure that is
in place to handle physical checks
must be transitioned in conjunction
with the change in the form of the
checks. Measuring, monitoring and
managing unit cost throughout these
changes will distinguish the banks
that emerge as leaders in the new
check-processing paradigm.
There is no one-size-fits-all solution
for managing the changes that a bank
will experience as a result of Check
21. The timeline for change that
each bank chooses, the priorities
that it establishes and the partners
that it chooses will vary greatly
from bank to bank. And well it should.
Each bank is different and Check
21 will therefore affect each bank
differently. But the change will
come. The banks that are prepared
to change – indeed, the banks
that welcome change – will be
changed for the better as a result
of it.
Michael Reagan is a Sr. Principal
in Carreker Corporation's Global
Payments Consulting Division.
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