By Maria Bruno-Britz

Last month, the Federal Reserve announced plans to revamp its check processing infrastructure to better reflect the move from paper to electronic check processing. The Fed entered into an agreement with Unisys in which the vendor will enhance the check processing infrastructure by way of the Federal Reserve Bank of Cleveland. I actually discuss this deal in greater detail in the July issue of Bank Systems & Technology.

The move is significant for the industry in that the Fed is sending a loud message to banks that they mean business about eliminating paper check processing—or at least seriously diminishing paper volume. One of those I spoke to for my July article on the subject was Nancy Atkinson, a senior analyst with Aite Group. She says the announcement illustrates that the Fed recognizes the fact that paper processing systems are not the most efficient means for settling payments. Further, it’s important to remember that this is a change that will affect banks across the spectrum. “…as images are replacing paper checks, the Fed needs to be able to provide processing solutions for all sizes of financial institutions.”

Related to this, on June 26, the Fed said it plans to change its check processing operations to reflect the move to electronic clearing. According to the Fed, Philadelphia, Cleveland, Atlanta and Dallas will act as regional check processing sites providing the full range of check processing services through at least mid-2011. Remaining sites will have their operations scaled back. All will print substitute checks, while some will also capture paper checks.

The move is being hailed by the those in the industry as a necessary step toward further modernizing our payments system. According to Camden Fine, Independent Community Bankers of America (ICBA) president & CEO, the announcement “sends a clear message to financial institutions of all sizes and types that now is the time to implement check image clearing. Procrastination will yield only increased item processing fees, exorbitant transportation fees, and compressed cash letter delivery and pickup schedules.”

Fine’s assessment is right on target, particularly the fact that all FIs will be affected by this reorganization by the Fed. The industry overall has a pretty clear picture of where it needs to go on the check processing side. There are some laggards that just haven’t quite gotten on-board with the idea of check digitization. As a whole, however, FIs have made good progress related to Check 21, but it will take time to alter a decades-old way of doing things.

This is a public forum. CMP Media and its affiliates are not responsible for and do not control what is posted herein. CMP Media makes no warranties or guarantees concerning any advice dispensed by its staff members or readers.

Community standards in the message center do not permit hate language, excessive profanity, or other patently offensive language. Please be aware that all information posted to this forum becomes the property of CMP Media LLC and may be edited and republished in print or electronic format as outlined in CMP Media's Terms of Service.

Important Note: The Message Center is NOT intended for commercial messages or solicitations of business.