PHOENIX -
"Check 21 technology is like the Betamax videocassette," said Bryan Nielsen, senior vice president, branch operations, at Arizona State Credit Union here. "It's a temporary phenomenon."
It's a very expensive and time-intensive phenomenon for many credit unions. Navy FCU told Credit Union Journal in 2005 that it was embarking on a Check 21 project for which costs would take three years to break even. MacDill FCU in Tampa, Fla. said that researching, testing, and rolling-out its Check 21 installation took several years.
Other CUs report the hassles of Check 21- related technologies have included getting stuck in the mire of duplicate postings, wherein the physical check and the image are both presented for payment.
Despite the costs and complications, some credit unions have determined Check 21 is still worth it. The $1.1-billion Arizona State CU, however, has so far steered clear.
"With Check 21, you're investing in technology for a dying process," Nielsen explained. "You're putting up infrastructure for something that's continually decreasing."
Indeed, check volume is plunging. The country has written 40% fewer checks in the past four years, according to calculations performed by Cornerstone Advisors of Scottsdale, Ariz.
At Arizona State CU, share drafts and checks collected have declined about 5% in the past year, according to Nielsen. Meanwhile, ACH activity has grown by about 7 %.
"ACH is going to be the wave of the future," he added. "If I had my way, I'd go straight to ACH, but the rules aren't there yet to clear my checks that way."
ACH transactions processed quarterly have increased by more than 100% in five years, according to NACHA. Oregon Community CU in Eugene, Ore., is riding the ACH wave. Electronic payments, to include ACH, have increased by more than 60% in the past three years, according to Sherrie Herndon, vice president, information technology and facilities at the $735-million CU.
Yet check volume has decreased by an average of about 14% per year for the past four years, she added. Neither CU is embracing Check 21 technology in-house; in fact, they haven't even touched common imaging technology. "With declining check use and increasing direct deposit or other electronic payments, we have not truly seen the need" for in-house Check 21 tech, said Herndon.
The Check 21 technology itself isn't so glamorous, asserted Nielsen. Acceptance by large check processors and clearinghouses has been slow.
And even though some checks are successfully exchanged electronically, Nielsen estimated that the Federal Reserve converts 90% of them back to paper for processing or archiving.
At Spokane Teachers Credit Union in Spokane, Wash., a Check 21 tech installation would have to be woven throughout the enterprise, from the back office to the teller to the ATM, requiring new hardware at each station and a seismic shift in processes, said Belinda Caillouet, vice president, information technology, at the $850-million CU.
"I'm not sure we'd be able to cost-justify that just to get early credit on checks," Caillouet said.
The technology side may be turning around, however, she continued. "The costs on the processor side have come down. It's time to put Check 21 back on the radar."
Both Arizona State CU and Oregon Community eventually may be forced to adopt Check 21 technology. As check volumes continue to decline, third-party service providers may have to jack up their imaging and exchange fees, explained Herndon. Credit unions questioning the value of Check 21 technology are right on the money, according to Michael Croal, senior director at Cornerstone Advisors.
"How can you justify investing billions of dollars in capital, time, effort, development, testing, training and implementation for a volume of work that is declining ever more rapidly and is nearing the precipitous edge of the cliff?" wrote Croal in a September edition of the Cornerstone-sponsored "Gonzobanker" newsletter.
Credit unions should put their money elsewhere, Croal told Credit Union Journal. "Were half the money being spent on checks being put back into the card world for things like instant issue cards, photo on cards for security or rewards programs, then the longer term earnings play is enhanced."
FOR MORE RESOURCES
* www.azstcu.org.
* www.oregoncommunitycu.org.
* www.stcu.org
* www.crnrstone.com
