Checks step into the 21st century

Banks’ electronic deposit service allows businesses to deposit scanned checks remotely

Katrina Meyer’s schedule used to be dictated by the checks coming in from the company’s customers each day. Now, the office assistant for Woodland-based American Paper Converting is in control. At first glance it would appear that technology is what’s giving American Paper Converting more control over its check depositing. But it is legislation passed nearly two years ago and a service offered by West Coast Bank that is driving it.

West Coast Bank launched its iDeposit program in December 2005. The use of a check scanner and internet connection allows business to remotely deposit checks. The program is made possible by the Check Clearing for the 21st Century Act passed by congress in October 2004. The Check 21 legislation allows for a scanned image of a check to substitute as the legal equivalent of the original document.

"It allows for an exchange of checks for purposes of processing from one bank to another using an electronic image rather than a physical item," said West Coast Bank President and CEO Bob Sznewajs.

In this market, national institutions Bank of America, Key Bank and Wells Fargo all offer business customers electronic check depositing, and Portland-based Umpqua bank just introduced expressDeposit, its version, this month.

Check 21 is designed to foster innovation in a payment system that has gone relatively unchanged in a time when electronic forms of payment have become quick and easy. Electronic payments surpassed check payments for the first time in 2003, totaling 44.5 billion and 36.7 billion transactions that year, respectively, according to the Federal Reserve. Debit card transactions are the fastest growing type of electronic payment. The majority of business transactions are handled by checks, however.

"By volume, there is still a large number of checks written," said Sznewajs, "but by way of trend are declining."

Congress was spurred to develop the legislation following the Sept. 11 attacks that crippled transportation across the U.S. As a result, the financial system came to a halt, said Sznewajs. Checks change many hands and travel long distances during the clearing process. In the case of American Paper Converting, customer checks arrive in the mail each day. Prior to enrolling in iDeposit, Meyer had to prepare the checks to be picked up by an armored truck daily. The company would then have to wait until West Coast Bank received the shipment before the funds were credited to the company’s account. The buck, or check, rather, doesn’t stop there. Typically, checks are then sent to a Federal Reserve Bank for collection. The Reserve credits the depositing institution and collects from the bank from which the funds were drawn after the check is presented to it. The process can take days.

Utilizing West Coast Bank’s iDeposit, American Paper Converting scans each day’s checks through the scanning machine supplied by the bank and completes the process online and submits it to the bank. Businesses can remotely deposit checks anytime and as late as 7 p.m. on Monday through Friday to receive credit that day. The original checks are held by the business for up to 90 days and then destroyed.

Meyer said the system is faster and more convenient.

"I can take care of deposits here instead of worrying about what time the armored truck will show up," she said.

The program also produces a daily report with totals and any notes inputted. The only potential challenge Meyer sees is the possibility of the Internet connection being down, but that has not happened to her yet.

The major benefit to businesses, said Sznewajz, is efficiency. It eliminates the need for employees to take time to make daily trips to make deposits and speeds up availability of funds. Businesses with multiple locations can centralize deposits to one institution even if there is not a conveniently located branch nearby. West Coast Bank hopes this feature will allow it to grow deposits. There are other benefits to the institutions that carry this service. The cost of processing iDeposit checks is less than a paper check, said Sznewajs, and will cut costs for the bank.

The bank has been promoting the service to existing customers, and it hopes to draw in new clients as well.

"It’s an attraction for going out and getting new business," said Sznewajs.

The service costs a minimum of $50 monthly, and West Coast Bank provides the scanner at no cost. The only requirement is a high-speed Internet connection and PC.

The majority of the check scanning machines, which look much like card-swipe machines in grocery stores, provided by the bank are manufactured by Waterloo, Ontario-based RDM Corp. The company specializes in software and hardware products for electronic payment processing. The company posted revenue growth of 25 percent in the second quarter of 2006, led by a 57 percent increase in its digital imaging segment. The company said its digital imaging division, which includes check scanners, is its key long-term growth segment. Remote deposit is in its early days of adoption and continues to accelerate, RDM notes.

West Coast Bank declined to disclose how much it has cost the bank to implement iDeposit, and it has not determined the cost savings it produces.

As it becomes more widespread, competition not offering remote deposit will be at a disadvantage. Check imaging and payment processing will continue to evolve as well, said Szenwajs. Image capture of checks may reach the consumer level and be performed by machines that also accept debit and credit transactions.

"It eliminates the need for paper to move from bank to bank and city to city," said Sznewajs. "It will take a long time, but that is the intent and purpose of the legislation."

Check it out

Check Clearing for the 21st Century Act became effective on October 28, 2004. The act encourages, but does not require, electronic check exchange by banks. Check 21 authorizes the use of "substitute checks." A substitute check is a paper reproduction of the original check that contains an image of the front and back of the original check and can be processed just like the original check. Substitute checks are the legal equivalent of the original check.

Distribution of non-cash payments in 2000 and 2003

graph according to the 2004 Federal Reserve payment study

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