WASHINGTON -- A new Federal law allowing for all-electronic check transaction processing promises to make having reliable and secure network services even more of a necessity going forward.
On Oct. 28, The Check Clearing for the 21st Century Act will take effect, allowing banks to send a digital image of a check to the processing bank rather than the physical check itself.
The legislation was signed into law last October.
"The law facilitates check truncation by creating a new, negotiable instrument called a substitute check, which would permit banks to truncate original checks, process check information electronically, and deliver substitute checks to banks that want to continue receiving paper checks," according to the Federal Reserve Board.
The end result should be a dramatic reduction in the time it takes to process checks and an equally dramatic reduction in the amount of checks working their way through a mail system that is antiquated by today's network capabilities.
In recent months, AT&T has positioned itself as one of the leading network providers equipped to handle the transition.
Last May, AT&T said SVPCo, a check and electronic clearing service owned by 22 banks, and The Clearing House Payments Co. had signed a pact to provide network services for exchanging digital check images among financial institutions.
"The legislation allows banks to pass the image of a check rather than the physical check itself, which speeds up processing," said Jeff Miller, director of content and commerce markets for AT&T. "It has also led to talk of doing things like putting scanners at the retail point of sale, so that when a consumer pays by check, it can be instantly scanned in and settled all digitally rather than through the mail."
Miller admitted that going to an all-digital model is a departure for the traditionally conservative financial industry. However, the events of Sept. 11 drove home the need for multiple safety nets when it comes to storing and transferring data. Eliminating the paper burden was a further benefit.
"The hot topic is now that you can use the image rather than the physical check, why don't you extend that as far out to the endpoints as possible?" stated Miller. "There are the beginnings of trials at various places where banks and retailers are looking at placing point-of-sale scanners, so once the check is written, it's scanned in. The merchant stamps it as processed, and hands it back as a receipt. The retailers and the banks don't want, or need, to handle that piece of paper."
According to Miller, installing the new technology may take some time, but companies like AT&T already have the infrastructure in place.
"The consumer level is sometimes the last place to see it because you want to make sure that the core functionality, security and reliability are in place first," Miller pointed out.
Aside from taking advantage of the new check imaging allowances, the reliability of networks continues to increase.
"There's some external information from Tower Group that says if credit card authorization halts, it costs over $200 million per hour," said Miller. "Retailers wouldn't be too happy if they can't get their credit cards authorized."