Check 21 - The check is not in the post.

Check 21 provides a number of new challenges for the software industry. This document presented by RedTitan gives a a quick overview from the perspective of an electronic document specialist ...
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The Check Clearing for the 21st Century Act (now known as Check 21) became law in the USA on the 28th of October 2004. Over 40 billion paper checks are issued in the USA each year. Now, with this breakthrough legislation, an electronic image of a check can be used a legal replacement for the original. Check 21 means that it is no longer a requirement to post the actual check back to a bank in order to draw money from an account.

Although Check 21 does not mandate that electronic images must be used to replace physical checks there are several factors that will speed adoption by banks. The need for a system less prone to disruption was well illustrated by the shut down of commercial aviation in the aftermath of the the World Trade Center attack. The savings on transport costs and the reduction in the potential for fraud are also good reasons to implement Check 21.

Using late presentation to provide a "float" will become a dangerous game - A check used at the florist may well be cleared from your account before the flowers need water!


Check Truncation

Check 21 gives a legal status to a printed substitute check. This "Image Replacement Document" can be used in the same way as the original. Most banks involved in the check clearing process have already had to invest in the infrastructure required to create and process legally formatted substitute checks. However, a financial institution that cannot accept an electronic check can simply have an "Image Replacement Document" printed locally and use the paper substitute to complete the deal. The substitute check neatly sidesteps the need for the "Mom and Pop" financial outfit to play catch up. The requirements to print a substitute check are not much more difficult than printing the original (and a potential for new fraud)
  • An image (scan) of the front and back of the original printed on special paper stock.
  • The legend “This is a legal copy of your check. You can use it the same way you would use the original check.”
  • A MICR stripe
Although the act does not require banks to process substitute checks it does look like it will be a distinct competitive advantage.

Expedited Recredit

Check 21 also changes the law dealing with disputed account transactions. The bank now has only ten days to investigate when duly notified of a mistake. For smaller amounts Joe Public gets a better deal. If the bank can't prove that a transaction was correct within the time limit then the account holder gets the benefit of the doubt. This alone will put image viewing, extraction and indexing software on every desk at the bank call centers.

RedTitan believe that "value added" services connected to Check 21, like online banking will do a great deal to help consumers have trust in electronic documents and focus industry specialists on creating more robust standards. In fact, if there was 100% adoption of Check 21 overnite, the price of a postage stamp would have to double to compenstate for the lost revenue to US Mail and a large part of the junk mail printing industry would become uneconomic. A great outcome? - consider the consequent impact on email spam, where we have not had the benefit of similar enlightened legislation!

It's time for the banks to agree a few standards for emails. For example, enough to distinguish the "Check 21" returns from an invitation to help with some Nigerian money laundering!

Is paper dead?

Athough Check 21 leaves the bank having to keep check records for seven years the trend towards the electronic document is clear. The question is no longer whether the printed paper will survive many years but what it takes to "refresh" an electronic archive. A newborn in a middle class family is likely to live to at least 70 years and would like to be able to view the small print of the insurance documentation when the time comes - How do you know ADOBE READER will still work?

RedTitan technology provides a lot of the "glue" that holds the electronic printing and imaging world together. Now celebrating our 20th anniversary, we have seen many a de facto standard come and go. Obviously standards must evolve to deal with emerging technologies but the burden for the information manager is not only selecting the winning vendor but also proving that he will survive long enough to celebrate. (I don't address the need to use long lived media here - make sure you make a few copies on different substrates or be prepared to look for 800bpi tapes on eBay!)

If you are going to use a proprietry format like PDF for customer communications, get a second opinion on how well yours are put together!

Patent blight.

Image formats often suffer from "Patent blight". Software authors are usually not too mean to pay small licence fees to patent owners but if there is a choice, the industry drifts away from techniques that might be patented. For example, UNISYS claimed a patent in the LZFW compression technology used in the GIF format. Even though the patent is now expired, the threat by UNISYS to defend their "patent hedge" is sufficient to deter most developers. The industry reaction was to develop the PNG (Portable Network Graphics) format. Even the ubiquitous JPEG format (used in Check 21) contains patents owned by Forgent and this will inevitably lead to the early adoption of JPEG 2000 which has been placed carefully into "licence and royalty free" use (for now).

The message is clear - make sure you own the code you use to read images and you have the right to use it.

Maintaining a good image

Check 21 missed the opportunity to mandate a true standards based image format and adopted a pragmatic "if it looks right it probably is right" attitude. The Check 21 standard for electronic exchange is defined in the standard DSTU X9.37-2003 . It is a binary interchange format (It was just too late to use the more extensible XML format). The file format doesn't start well - The value ‘01’ is defined in EBCDIC with the hexadecimal value ‘F0F1’ and in ASCII with the hexadecimal value ‘3031’. It is unlikely that this format has any currency outside the banks but electronic extracts, including check images, will soon replace the option to see actual cancelled checks back home.

The mandated image formats embedded within X9.37 files are TIFF 6 (Aldus Pagemaker format now common to scanners and fax) and IOCA (Now you can't leave out IBM can you?). By special negotiation between the source and target sites other image formats can be used - PNG (A good thing - see above), various flavors of JPEG including JPEG 2000, and anything else the X9 web site cares to define. The snag with this rag-bag of formats is that none of them will "round trip". The same image could have many binary representations even within the same nominal format - this makes it difficult to prove you are talking about the same check.

These are formats not standards - the nuance of TIFF packing and compression techniques causes many an argument in the office. The benchmark is often what PAINT SHOP PRO version 5.0 could read. If you are an information manager archiving DSTU X9.37-2003, make sure you have escrow agreements in place with your software suppliers. If you change computer technology (management thought UNIX might be cheap) don't expect the new supplier to be able to read that special flavor of SPIF format.

If you need help or friendly advice from industry experts contact RedTitan - leaders in view, transform and electronic printing technology.

© RedTitan Technology 2004