Check 21Changing How Banking is Done Today

Presented by:Kimberly Feeney, Vice President

Government Treasury Services

Bank of America

312-828-2582

2

Agenda

Overview of Check 21 Legislation Check Transformation: Conversion vs. Truncation Payment Trends A Check 21 Solution for Deposits Questions

3

Check Truncation: The Check Clearing for the 21st Century Act

Purpose of Act To facilitate check truncation To improve efficiency in the U.S. banking system by

eliminating the need to transport paper checks for presentment between banks

To facilitate broader use of electronic check processing without mandating any bank to change its current check collection process

4

Requirements of ActBanks must process substitute checks if receivedBanks must notify customers that they may not be

able to receive their original check Banks must abide by a new set of rules for re-

crediting consumer’s accounts under certain circumstances, on an expedited basis

Check 21 was signed into law on October 28, 2003 and became effective October 28, 2004

Check Truncation: The Check Clearing for the 21st Century Act

5

Check 21: A Closer LookCheck 21 is designed to encourage innovation in the payment system by removing key barriers to

check truncation Check 21 allows banks to provide a substitute

check, also known as an Image Replacement Document (IRD), in lieu of an original check

If you receive your paid checks with your statement, you may now get IRDs insteadCheck 21 does require that banks accept a

substitute check generated from an image (IRD)Check 21 does not force all banks to accept

images

6

Once a check is truncated and turned into a substitute check, its legal standing does not change The item is still considered to be a check and

continues to be governed by the Uniform Commercial Code (UCC)

Check truncation applies to all checks, both corporate and consumer This includes travelers checks, money orders and

cashiers’ checks Check truncation has no dollar limits

Check 21: Fundamentals

7

When is it a Legal Equivalent? Contains image of front and back

of the check Conforms to industry standards:

MICR and physical characteristics of check

Accurately represents all information on original check

Substitute Check (IRD)

Is suitable for automated processing

Bears legend Includes all endorsements Includes identification of party

creating it

8

Check Transformation: Defined Check Conversion transforms a check to electronic

settlement Converting a paper check mid-life cycle to something other than a

paper check Example: conversion of returned checks to ACH transactions

Check Truncation transforms a check to image-enabled electronic or paper settlement Using electronics to improve the existing check payment system Example: electronic check presentment and the Check 21 Act

9

Check Conversion and Check Truncation Sound Similar…

Check Conversion: Changes the check’s legal

standing Once converted, the transaction is no

longer governed by UCC, but by Reg E

Some transaction types have dollar limits (POP and RCK)

Requires customer authorization (except for RCK)

Applies to consumer transactions only

Is available today

Check Truncation: Does not change the check’s

legal standing When check is truncated and

turned into an image, it is still considered a check and continues to be governed by the UCC

Has no dollar limits Requires no additional

customer authorization Applies to all checks Is available today

…However, there are differences

10

What are the benefits to your school district?

Check Transformation: Benefits?

Faster access to funds Expedited check processing Reduced transportation costs Faster notification of returned items, based on faster

deposit time Frees up resources

11

Payment Trends

0%

20%

40%

60%

80%

100%

2001 2005 2010

Checks ARC ACH Credit Card Debit Card

12

Payment Trends ACH Annual Growth: +15% Debit Annual Growth: +12% Credit Annual Growth: +8% Stored Value Annual Growth: +8% Wires Annual Growth: +5% Cash Annual Growth: +2% Check Annual Decline: -5%

13

Payment TrendsWhy is Check Volume Declining?

Changes in Consumer BehaviorCredit/Debit CardsACHElectronic Bill Payment

Changes in Corporate/Government BehaviorACHCredit Cards

14

A Check 21 Solution for Deposits

Features of a typical bank deposit

Processed daily Time to prepare: 20 – 60 minutes Usually hand-delivered to banking center by local

staff (not armored carrier)

15

What if….

You didn’t have to take your checks to the bank You could speed the time to deposit (good funds) You could reduce risk through faster notice of

returned checks You could enjoy the benefits of efficient paperless

processing

16

Remote Deposit – a Real Solution

Remote Deposit can replace your current process of accepting and processing checks with a more

efficient and cost-effective process

Remote DepositGets your deposits to the bank fasterCan reduce risk since checks are presented

sooner Allows each location to make deposits to a central

accountEliminates the paper check at the earlier point in

the cycle for most efficient paperless processing

17

How Electronic/Remote Deposit Works

Depository BankYou scan checks, transmit to bank

Depository Bank captures image and MICR information

Software determines if check is ARC-eligible (option) or not,

and determines optimal clearing route, ARC or Image

Paying Bank

Paying Bank processes

ARC, IRD or check image

You receive checks

Item routed through payment system:

• ARC – to Fed or Clearing House

• IRD or Image– to Paying Bank

Consumers receive information on their statement:

• ACH (ARC)• IRD• Check truncated

18

Electronic/Remote Deposits

What do you need to implement this service? Check Scanner Software to store the images and create the

deposit Fast and secure transmission method Partner with a financial institution that will accept

electronic deposits

19

Electronic/Remote Deposit

Benefits: All checks are eligible Eliminates transportation costs Reduces encoding errors and deposit adjustments Customer service research requests are

expedited by providing access and search capabilities of the deposited item images.

20

Things to Consider

Remote Deposit is an emerging serviceBank needs to be capable of accepting an imaged

check depositOpportunity to re-engineer your deposit processScanning equipment and software for each

location To your customer, the check truncation option is

almost transparentACH rules and regulations apply for ARC option

Thank You

Presented by:

Kimberly Feeney, Vice PresidentBank of America231 S. LaSalle StreetMail Code: Il1-231-06-12Chicago, IL 60697(312) 828-2582Kimberly.Feeney@bankofamerica.com