1	Check-21 & the Fed FMS Seminar March 18, 2004
2	Why are we here?
3	Cycles of payments
4	Hypothetical forecast of the future 2002 - 2010
5	Why should we care about checks?
6	Why should we care about checks?
7	Check 21 Basics Check 21 gives new rights to collecting entities Check 21 allows collecting bank to convert physical check to a physical, machine-readable, paper-substitute Paper substitute has the same legal force as the original Any check can be converted Check 21 is a law Check 21 does not: Provide legal coverage for image exchange Mandate image Determines what constitutes legal presentment
8	The Substitute Check
9	Check 21 basics
10	Check 21 basics
11	Check 21 basics
12	Electronic Check Illustration Post-Check 21, physical cashletter 4
13	With freedom comes responsibility
14	Consumer Protections Existing check law UCC Articles 3 and 4: A bank may only charge a properly payable check to a customer’s account Banks must resolve claims timely in order to limit liability Federal Reserve Board’s Regulation CC (Expedited Funds Availability Act)
15	Consumer Protections Additional Check 21 protections (warranties and indemnity) A bank that creates a substitute check warrants that: The substitute check meets the legal equivalence requirements Payment will not be requested based on a check that has already been paid (no double debit) Bank that creates substitute check indemnifies all parties for loss, if loss is due to receipt of substitute check rather than the original check Consumer may make claim under Act for substitute check that was not properly charged or for warranty claim Consumer suffered loss Original check or substitute check necessary to determine validity
16	Consumer Protections Expedited recredit provisions for consumers Conditions A substitute check was not properly charged to the consumer’s account or there was a warranty breach, The substitute check was provided to the consumer, The consumer suffered a resulting loss, and The original check or a better copy is needed to resolve the claim Claim must be filed within 40 days of receipt of the relevant statement or substitute check The consumer’s bank must produce original check (or a better copy of the original) showing that the substitute check was properly charged; otherwise the bank must provide an expedited recredit The bank may reverse the recredit if it determines that the substitute check was properly payable
17	Check-21 & the bottom-line Will Check-21: reduce my operating costs? reduce fees I pay? reduce my collection float? reduce my fraud losses? retain good customers? attract new customers? generate new fees & NIM? make me more competitive?
18	Check-21 choices: the passive approach
19	Check-21 planning
20	Thinking about Check-21 from a DI’s perspective
21	Outbound return (where bank is dishonoring a check)
22	Where is the money? Proof & Transit Float improvement POD reengineering/Couriers Branch cut-offs, float extended to customers, business accounts Fee improvement Outbound Returns Reengineer returns processing/Couriers Fee improvement On-Us Processing Convert accounts to safekeeping & consequent backroom savings Outsource MICR/image capture activity, reduce/eliminate sorters Inbound Returns Fraud risk & loss Process reengineering Special instructions for business accounts
23	Where’s the concern? Paying customer resistance to truncation Transit item truncation - bulk file Administering claims Substitute check issues Quality control Liabilities Cost Forgeries Rate of Adoption What about ARC? Standards and rules Adjustments
24	Fed platform readiness for Check-21 Capture anywhere, deliver anywhere Standard check platform in all offices permits item kills & MICR edits for any customer nationwide Image capture at any office, export to anywhere FedLine-Web permits customers to view images or download files without regard to capture point All of our services are in production Largest payments processor in the US More than 5.2 billion images now archived Monthly Image Output - January 2004 DLT and 8mm tape - 488 tapes created - 2.6 million images CD ROM -6,911 CDs created - 48.8 million images Internet file delivery - 230 customers, 47.6 million images transmitted 175,523 images viewed, e-mailed or faxed via FedLine for the Web
25	Fed product readiness for Check-21 Clear checks Convert paper check deposits to Images Receive image cashletters Capture images at Fed-of-First-Deposit for collection elsewhere in the US Offer check-to-ACH conversion Create image cashletters for presentment Produce substitute checks
26	Summary Check is here to stay Will be progressively smaller & much more expensive to handle as time goes on Image and ACH conversion will accelerate the decline Now at 3% - 5%; could be 5%+ Check-21 exploitation is about money in major process areas Proof-of-Deposit & Outbound transit Returns decisioning & Outbound returns Inbound on-us, cycle/account sorting, bulk file, statement rendering & mailing Inbound returns to BOFD, reclears, final disposition Fed will have new services to help banks jumpstart their exploitation of Check-21 Fed services are not smoke-&-mirrors
27	Questions?