Tool 1: Understanding The Big Picture
Check Exchange Options: Paper versus Electronic
Today, there are two channels available for clearing check payments: the traditional
paper exchange process and check image exchange networks.
In the traditional paper exchange of checks, items arrive at branches, are transported to
a central processing or image capture site where they are imaged, and then sent along
to a local clearing agent or Federal Reserve office. Once there, the items are processed
and captured, then transported to the bank’s processing shop or a nearby agent that
hands off the paper to the paying institution.
A Traditional Paper Check Exchange Arrangement
There are many places throughout the process where the paper check can be truncated.
For example, near the end of the physical process, the remote clearing agent might
truncate the paper and make available image files to the paying institution, via a
transmission agent. Many financial institutions receive these types of services today
from clearing agents.
Truncating At The Remote Clearing Agent
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Check 21 Toolbox
Another logical truncation step would be to capture the image at the clearing agent of
first deposit. Under this scenario, the local clearing agent truncates the paper and
transmits image files to remote clearing agents or offices of its own that are in the
physical proximity of the paying institution. If the paying institution does not accept check
image files, a substitute check is created from the image of the item and couriered to the
paying institution. However, if the paying institution is image-enabled, check image files
can be transmitted to the paying institution from the clearing agent as incoming items.
Truncating At The Clearing Agent Of First Deposit
Take this process one step further and it’s a full-fledged check image exchange
network. Joining an image exchange network allows a bank to utilize routing numbers
that are available for image clearing through that network. Based on the makeup of
available routing, a bank would modify sort patterns to direct or sort those items
separately from paper items. For example, a truncation pocket could be established and
all the items available for clearing through the image exchange network would be
directed to that reader/sorter pocket, while items clearing as paper would sort to the
same pockets used today and transported to local clearing agents. In this scenario,
paper continues to move, but there are a number of endpoints available should there be
a need or desire for image clearing.
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Tool 1: Understanding The Big Picture
A Full-Fledged Image Exchange Network
There are several ways a bank can expand image-processing operations. It may still be
cost justifiable to continue moving paper for all checks below a certain dollar amount.
When checks are available for electronic image clearing and are above a certain dollar
amount, a bank might decide to use the exchange network for faster clearing and faster
availability of funds, but keep in mind the potential liability of the bank creating the
substitute check under Check 21.
Then, again, some banks might take the process a step further and move truncation
all the way out to the branch, which is where many checks enter the clearing stream.
The image would be captured at the branch, transmitted to a central site for
reconcilement, balancing, etc., and sent on to the image exchange network for clearing.
Tool 5 reviews other opportunities your bank might consider under Check 21.
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Check 21 Toolbox
Exchanging Images At The Branch Level
Most importantly, each bank can decide just how far they want to go down the image
trail and at what speed. Nothing in Check 21 requires a bank to truncate checks at
any point in the process.
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