Jerome Brown.pdf

8/12/2019 Jerome Brown.pdf

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ACCELERATE THE PROCESS

CHECK TRUNCATIONJune 2007

Jerry Brown


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Worldwide Market Forces

National Truncation Examples

France

United States of America

Brazil Recommendations

Agenda


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Market Forces

Truncation Drivers

Countries with highest operating costs are early technology adopters

Labor, facilities, transportation costs etc.

Nations achieved a positive ROI at different times Scandinavia has one of the highest labor and social costs

Other Drivers Transportation Crisis 9/11, strikes etc.

Every national truncation system has required new legislation

Cost

Tech

no

logyCost

Time

Operations

CostCost

Tech

no

logyCost

Time

Operations

Cost


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1980s Brazil

Hyperinflation drove country wide ECP clearing

1990s Norway and Sweden Escalating operational costs drove full truncation

1997 U.K.

Inter Bank Data Exchange (IBDE) mandated [ECP] 2007 rapidly declining paper volumes reduced truncation ROI

2001 France

Operational costs drove full truncation completed July 2002 2002 USA

Truncation via ARC for remittance consumer payments

Transportation crisis of 9/11 drove Check 21 legislation in 2004

2008 Canada

Driven by operational savings & US alignment completes 2010

Market Forces

Truncation Drivers


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Legal obstacles slow to change

Microfilm or paper required by courts

Smaller banks inability to compete

Insufficient image outsource capabilities

Banks have competing investments

Alternative use of capital with higher return

Network Traffic Bandwidth Telecommunications infrastructure requirement to

support image exchange.

Market Forces

Truncation Inhibitors


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Market Forces

Impact of Declining Volume

Electronic payment adoption has been high

Direct debit, web payment, wires etc.

Paper payment in decline worldwide

Exceptions India, China and a few emerging markets

Operations challenged to maintain unit transaction costs Consolidations whole bank or operations centers

Trend to outsource or offer an outsource service

Ultimately market consolidates to just a few processors Sweden Privatgirot and Nordea

Netherlands Postbank, Interpay

U.K. IPSL, EDS, BancTec Canada Symcor, Intria


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Continuous ECP exchange until 6 p.m. - settlement shortly after 6 p.m.

Items over Euro 5,000 and suspect items are sent to paying banks


France

Paris

Clearing

Chamber

Item processing &

image quality

verification

Bank of first

deposit

-Branch

-ATM-Vault

-etc.

- Archive

includes all

request history

Paying

Bank

2% of checks volumes

SIT

EIC

ECPd

ata

Return

s

ImageR

equest

Image

direct

send

onde

mand

Paris

Clearing

Chamber

Item processing &

image quality

verification

Bank of first

deposit

-Branch

-ATM-Vault

-etc.

- Archive

includes all

request history

Paying

Bank

2% of checks volumes

SIT

EIC

ECPd

ata

Return

s

ImageR

equest

Image

direct

send

onde

mand


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DAY 1

Primary branch focus is to sell new products and services During off peak time teller loads deposits into scanner

MICR data and Image snippets (code line & amount)

are transmitted to regional center Local archive of images maintained for 30 days or more

End of day courier takes checks to regional center

DAY 2

Local image archive updated from center with balanced data

Supports local customer queries


France At the Branch


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DAY 1

Processing for many branches (typically 100 to 200)

Uses ICR to read check snippet image data

Processes, corrects and balances the transactions

Balanced data stream sent to ECP exchange throughout the day

DAY 1 - 2 OVERNIGHT

Items matched to electronic data and out-sorted as required

Images from the sorters are archived with authentication

Branch images not used for archive

Truncated documents secured for subsequent destruction

High value items dispatched for physical exchange

DAY 2

ECP exceptions / requests for images actioned


France At the Regional Center


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Teller focus on customer relationship, not operational process

Reduces peaks by operating the process throughout the day Minimizes branch capture infrastructure required

Minimizes telecommunication infrastructure requirement

Reduces courier runs to one per day

Fewer, more skilled staff at regional centers

ECP exchange removes the physical exchange peak sorter demand

Minimizes equipment at the center all night to process

Document storage, security and destruction is removed from the branch

Improved operational process control and quality in specialized centers

Software allows functions to be performed at branch, region or center


France Advantages


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Check Truncation

1990s Electronic Check Presentment (ECP) introduced

Voluntary between banks with limited adoption

Check truncation of any scale was never achieved.

2002 As a result of 9/11, Check 21 legislation expedited.

Law makes a substitute check (Image Replacement Document)

a legal replacement for the original

2004 28th October Check 21 Act effective.

2005 Banks and consortia piloting image exchanges

2007 Largest banks image exchanging up to 40% of volume


USA


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USA Image Replacement Document

From ANS X9.100-140-2004, Specifications for an Image Replacement Document (IRD)

used with permission of the copyright owner Accredited Standards Committee X9, Inc. Financial Industry Standards


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There are essentially two ways to approach national truncation,

both require changes in legislation

1. Legislate the whole process (French example)

Mandate all processors have image and archive capability

Agree image interchange / archive / security rules

Mandate timeframes ( France completed in under 2 years)

2. Legislate for an enabling document (IRD) (U.S. example)

Adoption based on market forces and economics Early adoption by largest banks

Local or national image archives

In both cases smaller banks may face competitive disadvantage

and are likely to outsource.


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FEBRABAN works with banks to determine truncation direction

Full legislation of complete process or

Enabling legislation relying on market forces In either case the legal issue of images and / or substitute

image documents must be resolved.

Potential Subsequent Steps

Work with banks to establish ROI for truncation

Facilitate image interchange between banks

Establish image formats, quality metrics, security

Establish archive / retention guidelines

Announce reasonable time frames for implementation

Sponsor Pilot tests

Communicate progress


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ACCELERATE THE PROCESS

Thank You

Jerry Brown [email protected]

Documents

Jerome Brown.pdf