As far as new technologies go, there's nothing credit unions should do this year to prepare for Check 21.
That news, in contrast to many vendor and analyst intimations, comes from Brian Musser, chief financial officer at Purdue Employees FCU (PEFCU) and board member of Mid-America Payment Exchange, an Automated Clearing House association.
"Don't get sucked into what the vendors are trying to sell you," Musser advised credit unions in an exclusive interview with The Credit Union Journal. "Check 21 regulations do not mandate or require any technology. Check 21 just opens the door for image truncation or transfer."
The Check Clearing for the 21st Century Act, or Check 21, is designed to facilitate check truncation by authorizing substitute checks at the point of deposit, lessening the transportation, fraud, theft and terrorism risks associated with moving paper checks. The regulation goes into effect on Oct. 28.
What Else To Be Prepared For
Beyond educating employees and members as to changes that will accompany image replacement documents (IRDs), credit unions need be prepared only to accept, not create or transfer, substitute checks, Musser added.
Yet vendors are hawking digital imaging technology, and inviting financial institutions to step through the image-transferring door now. According to many vendors, it's time for CUs to buy tools to create an image or IRD for an original check. The carrot is alleged reductions in labor, fraud, transportation and postage costs.
Analysts, in turn, foretell giant spending -ranging from $500 million this year to $2 billion next year-related to Check 21 technologies.
But Musser believes credit unions should wait. In fact, $398-million PEFCU has "no definite spending plans for technology for Check 21."
One reason is that the immediate cost benefits of image-exchange technologies aren't apparent, Musser said. "Savings remain to be seen as economies of scale are identified and partnerships are created."
Partnerships and the players who make them are "part of the question mark as to how Check 21 efficiencies will develop," he continued.
Leading payment services, such as New York-based SVPCo with about 60% of U.S. commercial bank deposits, "hold such a big piece of the pie, that we need to be watching them before making decisions about our investment in technology," he explained.
Before securing image-transferring technology, credit unions will have to make separate legal agreements with other participating financial institutions in order to engage in image exchange.
Playing Hunches
"One of my hunches is that these legal agreements will probably be figured out in the clearinghouses," said Musser. "A group of institutions could define the way they want to play the game. Then, being a member of the clearinghouse, a credit union could agree to certain requirements for image exchange."
PEFCU's technology for accepting electronic checks is outsourced through Mid-States Corporate FCU, said Musser. The same system delivers online check images via PEFCU's website.
On the check transit side, 56,000-member PEFCU has already installed check image capture technology at each branch. But Musser said the decision was only peripherally based on potential Check 21 benefits.
"The purpose of our image-capture technology was to improve the efficiency of internal processing loan payments, ATM deposits, and the actual encoding of teller counter checks," Musser explained.
"As a result, we do have the partial capability to participate in truncation and transfer to another deposit institution," he said. "However, most financial institutions aren't doing image capture today and don't have to."
