Today: Putting a Leash on the Check 21 Beast

The Evolution of Paper-Based Check and Transaction Processing

The Check Clearing for the 21st Century Law ("Check 21") will transform the banking technology enterprise, as we know it. Financial institutions finally have the opportunity to move forward with electronic check clearing and presentment, and away from aged paper-based processes and technologies. Once initiated, Check 21 initiatives will deliver exceptional operations benefits, notably cost savings and greater efficiencies.

The bad news is that the increasingly complex infrastructure demands brought about by Check 21 are seemingly overwhelming and have created "migration malaise" for many institutions.

Certainly from the point of view of most technology vendors, the ramp up of bank Check 21 initiatives has been disappointing thus far. A survey this spring showed that 40 percent of banks polled had no Check 21 strategy in place. There are several reasons for this. One is a lack of understanding of Check 21 business processes and technologies. Another is that many of the Check 21 rules are still relatively immature. Yet another is that some banks are considering outsourcing their item processing rather than taking on another system migration, particularly if they are not sold on the future economics of check processing.

Systems Overload

But the biggest reason for the Check 21 malaise at many banks is confusion and concern about the total, all-encompassing, end-to-end technology solutions being offered by most vendors. Most technology vendors are laying out very elaborate Check 21 strategies with the hope that their bank prospects will find something that addresses their needs, Most of these strategies force the user to replace many of their legacy systems and processes, and require a major capital investment and long lead-times to deployment. Some vendors clearly underestimate the value of getting existing paper paths and electronic systems to operate in sync. And savvy bankers understand the check enterprise is becoming too complex for a "one size fits all" approach.

Experience demonstrates that in medium and large-volume check operations, monolithic Check 21 initiatives will be difficult, costly, time-consuming and risky. Additionally, banks can't afford to waste their investments in legacy check processing technology (much of which were only installed in the lead-up to 2000) or risk disruptions to their check processes. Making an open-ended commitment to one Check 21 solutions provider also is the high-tech equivalent of putting all of your eggs in one basket: gambling that your vendor can meet the fast-changing demands of the emerging electronic banking environment. And at this point, it is anybody's guess what a typical electronic banking and payments enterprise will look like.

What's more, the October 28th start date for Check 21, coupled with the desire of many banks to take advantage of the benefits afforded by the legislation as quickly as possibly, virtually precludes the implementation of complex Check 21 platforms. This short timeframe: forces a very conservative, narrowly-defined product design strategy; which almost demands that products be built from existing, tested components with a minimum of new components; and precludes any product that would make large charges in the way a financial institution does business. So banks can't do "everything," but they can't do "nothing."

Keep It Simple, Stupid

Adaptive component software technology could be a rallying cry for legions of financial institutions under pressure to get more bang for their IT buck, while Check 21 not to mention resource, corporate and competitive pressures pull them in ever more directions.

The component approach provides image-based, operationally identical equivalents for each step of the paper process. Built on existing open technologies, each component starts with the minimum acceptable subset of features, and adds on only after establishing the need for each enhancement. In the emerging electronic check environment, the component approach: provides a solution that seamlessly co-exists with the current paper path; utilizes the same processing logic used by the bank's current paper path; has a low implementation cost; can be deployed incrementally; and uses the same pathways as the bank's current paper process.

Today, battle-tested software components are available for image exchange, remote capture, Internet banking, electronic payments, transport independence, 3890 emulation, and more.

To be sure, this component approach is solid, not sexy. Its benefits are eye-popping: from faster implementation, less risk and reduced operating costs; to improved productivity, lower capital expenditures and better use of internal resources. Best of all, a component-based Check 21 strategy ensures a very targeted approach to a bank's needs, and a seamless co-existence between paper and electronic paths - which few monolithic systems can claim.

The bottom line is that it's about time for banks to start realizing the benefits of Check 21. And with the proven, scalable component technologies available on the market today, there's no reason for banks to allow themselves to be overwhelmed by monolithic IT solutions.

Clint Shank is President of Omni-Soft, Inc. SortLogic SYSTEMS, a division of Omni-Soft, offers Check 21 related check and transaction applications. He can be reached at 972-423-2344, ext. 103, or cshank@sortlogic.com.