With Focus on Check 21, Opportunities & Issues Related to ARC Often Overlooked

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Check 21 may be what everyone's talking about, but the "next generation" of check processing also includes Accounts Receivable Conversion (ARC).

"Check 21 simply mandates you must accept a substitute check, it gives legal status to the substitute check. It facilitates the opportunity to move to e-presentment of checks," said Stuart Williams, director of ACH at CheckFree. "ARC is the actual conversion of a check to an ATM debit transaction so that it is actually originated directly into the ACH network, and then the check is actually deleted from the process."

The beauty of Check 21, Williams noted, is that if a financial institution isn't image enabled, there is still the opportunity to convert an image back to a paper document, an Image Replacement Document.

But Check 21 is not the only game in town, and that's a good thing, he suggested.

"One of the things I heard from a corporate credit union recently is that they greatly underestimated the telecommunications requirements for this," Williams related. "She said that for a day's worth of check processing, based on current bandwidth, it will take about 36 hours to transmit the images. Increasing the bandwidth will increase those telecom costs threefold, but over time, there should be a savings. But there are a lot of costs that people are not thinking about."

While ARC and Check 21 are alternatives to one another, they aren't mutually exclusive. "They're seen as competitors and that you have to pick one, but that's not true," Williams offered. "ARC can only be used for consumer transactions, not commercial. Consumer covers about 85% of the transactions, but that's still not 100%. Check 21 has no exclusion based on the type of transaction. ARC gives a more consistent time savings, and less data has to flow because instead of creating an image you're creating ACH, so you also don't have the telecom issues. Many financial institutions may find that a combination of these two processes is the way to go."

One downside to ARC is the potential confusion for consumers when checks don't show up on statements as checks-instead, they'll show up as ACH transactions. But that just means there will need to be some consumer education efforts, just as there will be for Check 21, he noted.

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