By endorsing a proposed industry standard for check images, the Federal Reserve System may have eliminated a point of uncertainty as banks rush to implement systems for clearing and settling checks using images instead of the actual items.
But while the Fed has embraced a standardized image format, the proposed standard’s longevity is already in question; some participants are already advocating a next-generation format that could be more flexible.
The Fed announced this week that it would use the “Specifications for Electronic Exchange of Check and Image Data,” fostered by the Accredited Standards Committee X9 Inc., a 30-year-old standards organization for the banking industry.
The standard, officially a “draft standard for trial use,” is also called DSTU X9.37-2003. Though not yet final, it is already in use by some banks that are preparing to clear checks with digital image files.
Steve Whitney, a senior vice president at the Federal Reserve Bank of Boston, said the Fed endorsed the specification “to encourage the industry to move” in the same direction. Though banks and their vendors may take different approaches to the Check Clearing for the 21st Century Act, “they now will have something to migrate toward.”
When banks captured check images on microfilm in the past for their own use, no standard was necessary. Even when they began to store images in computers, it did not make a great deal of difference what format they employed, as long as the images were being used only to produce statements for consumers or compact discs of images for corporate clients.
“Financial institutions have their own processes in place, their own standards, their own formats,” Mr. Whitney said. “Most of the image use thus far has been internal.”
However, once institutions began to exchange images with one another, a common standard became important.
Because of its role as an intermediary in the check collection process, the Fed is imposing a few requirements that go beyond the committee’s version of X9.37. These extra requirements simply involve certain data fields that must be filled in.
The X9 group says the final version of the standard could include the Fed’s requirements, and the standard may be completed by September.
Cynthia Fuller, the executive director of the Annapolis, Md., group, said the final decisions about the standard would be made by a 40-member committee, on which the Fed has only one vote.
“From my viewpoint, some of these things” the Fed wants “are optional,” she said. Though the Fed is influential in the discussions, the business requirements of the different organizations will control the final version of the standard.
Some market participants are cool toward X9.37.
Mark Craig, the general manager of CheckClear LLC of Oklahoma City, said his organization, which operates the Endpoint Exchange Network for image clearing, favors a newer proposal, X9.81, that would enable banks to use the more flexible format of extensible markup language — XML — rather than the fixed-field limitations of X9.37.
For example, while a large bank can justify the cost of producing an X9.37 file for each trading partner, the cost would be burdensome for small banks, Mr. Craig said.
The Endpoint Exchange Network has about 4,000 members, most of them small banks. CheckClear has signed a deal to sell itself to Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp.
Ms. Fuller acknowledged that the XML format “is the future,” but she said it will take some time to get there. “The problem is, you’ve got a large industry to move along with you.”
An overview of the Federal Reserve’s version of DSTU X9.37-2003 is available at www.frbservices.org/Retail/Check21.html.
For information about the X9 draft standard, see www.x9.org.
