Promising major improvements in the national payment system, the Electronic Check Clearing House Organization and the Financial Services Technology Consortium have announced that they will work together on two major projects.
ECCHO is an organization of major banks dedicated to electronic check presentment. FSTC is a multibank research effort, organized by Citicorp last year, exploring leading-edge technologies such as the image systems that can replace the physical handling of checks.
The two organizations said they will initially focus on the practical and regulatory issues involved in implementing a national system for clearing check images.
The groups are also working toward a completely paperless payment system that would allow buyers to create and send "electronic checks" to merchants for goods and services. Eventually, the system may also allow consumers to receive and pay bills electronically, officials said.
Prototype transactions for both projects will begin running in 1995, with live, working demonstrations slated for 1996.
John Doggett, vice chairman and treasurer of the financial technology consortium and director of applied technology at Bank of Boston, said the ECCHO and FSTC missions, memberships, and expertise are complementary.
"While FSTC can crack technological barriers, there are still rule, settlement, and item-processing considerations -- expertise that ECCHO brings to the table," he said.
ECCHO, a nonprofit clearing house with 64 bank members, will act in an advisory capacity, providing FSTC with access to operational, functional, and legal information concerning rules and standards for electronic check presentment.
To ECCHO's practical and operational experience, FSTC adds high-powered technology. The consortium consists of about 30 major banks, research institutions, and vendors. Among the associate members are the three top bank computer and item-processing system manufacturers -- International Business Machines Corp., Unisys Corp., and AT&T Corp.
"FSTC has a great depth of talent in technology, both applied and theoretical, that can be brought to bear" on the projects, said Michael Elvir, executive vice president at Banc One Services Corp., an ECCHO board member.
There's a "synergy between what FSTC is trying to do and ECCHO's mission," he said. While FSTC's mission is broader, there is a "high degree of overlap," he said, both in terms of the membership and areas of interest.
"The' thrust of both organizations seems to be in parallel," Mr. Elvir said. "Both appear to be interested in moving payments efficiently and in reducing cost by eliminating or reducing paper:'
Their first focus will be on interbank check imaging, dovetailing with a project launched in March by FSTC and coordinated by Citibank.
ECCHO's involvement will "give a turbo charge to check image processing, and provide further impetus away from paper," said Mr. Doggett. "The vision is to truncate paper at the bank of first deposit."
ECCHO members are already doing electronic check presentments, which involve sending check information between participating banks in advance of the paper items. While this speeds up bank processing internally, it does not eliminate paper the way fullfledged check image exchange will.
The two methods will probably be used in combination with each other, said J.D. "Denny" Carreker, president of J.D. Carreker and Associates, the Dallas-based consulting firm that administers ECCHO.
Electronic presentment will remain dominant for some time, with full image exchange being on an exception basis because of the cost involved. Forty thousand bytes, or characters, of data are required to store a single check image, Mr. Carreker explained, while only 80 bytes are needed for ECP data.
The next step in the progression from paper to electronics, said Mr. Doggett, is enabling businesses and consumers to generate electronic items that never existed in paper form.
Using smart cards as "electronic checkbooks" that would be inserted into phones or computers, catalog shoppers would be able to purchase merchandise and pay automatically, Mr. Doggett explained. The concept may even be extended to conventional points of sale, such as supermarkets, adding yet another payment option at the checkout counter.
Further out may be the capability for businesses and utilities to deliver bills electronically to consumers, via public e-mail, so that invoices are never created on paper, said Mr. Doggett.
He anticipates that the initial applications of electronic check will be in shopping over electronic networks for such items as software and data base information. Stores, too, are already starting to sell goods over networks, he said, and will need a payment mechanism.
As for network security, existing authentication and cryptographic techniques can ensure payment system integrity and detect any tampering with transactions, Mr. Doggett said. "That's not to say that consumers won't still need convincing," he added.
Assuming network connections and the ability to reach people over public e-mail networks, Mr. Doggett is confident the electronic check will become "a firstclass payment vehicle."
As alliances among banks, payment networks, computer companies, and other players have contributed to the reemergence of home banking, so too are multiple parties playing a role in bringing new, electronic payment systems to reality.
"FSTC is the lab, ECCHO is the private-sector rulemaking body, and organizations like Payment Solutions Network Inc., Visa, and the New York Clearing House will act as operational conduits," said Mr. Carreker.
Many of the alliances will come through redundant ownership, he said, since there is member overlap between organizations. For example, Visa U.S.A., which is owned by thousands of banks, recently took an equity position in Payment Solutions Network, another organization administered by Carreker, which carries out electronic check exchanges.
Mr. Carreker said the member institutions deserve praise for pushing the evolution of electronic payments. The initiatives, he said, are being driven mainly by the need to reduce check fraud, save on operating costs, and boost fee income.
