In the wake of September 11, Congress unanimously passed Check 21—the Check Clearing for the 21st Century Act—which enables banks to present digital images of checks instead of the originals. One of the stated legislative goals of the act was to reduce the financial system's reliance on the air transport system.
While it's not "mission accomplished" quite yet, this is the year that substantive strides will be made toward that goal, according to George Thomas, executive vice president at The Clearing House Payments Company (New York), which operates SVPCO, a private-sector clearinghouse for paper checks, check images and electronic checks.
SVPCO acquired the check operations of the Chicago Clearing House Association and the Western Payments Association (Wespay, San Francisco) in 2004. This week, SVPCO completed the integration by launching the SVPCO National Check Exchange, which will allow financial institutions to exchange checks and other items across regions of the country that were not as closely connected before. Currently, over 400 banks are participants in the exchange. "We brought all three of those check exchanges under the same management," says Thomas. "We've already started to streamline the expenses involved with paper-check clearing."
In addition to creating a common set of rules and a national standard for moving paper checks and cash letters, SVPCO also has been able to facilitate the transmission of image replacement documents, or IRDs, to paying banks. While SVPCO itself does not print the IRDs, it can hand off those requests to a third party, such as the Federal Reserve, which reaches the entire U.S. banking network, or EDS (Dallas), which operates a lower-cost service with a slightly smaller footprint.
SVPCO is in preproduction testing for its connection to the Federal Reserve so that it can both send IRDs and exchange check images. Indeed, SVPCO considers the connection with the Fed to be one of its top short-term priorities. "They can deliver the image cash letters to many end points, and they can produce the paper for those end points that can't handle the electronics—which today is the majority," says Thomas. "Ultimately, we hope that's the minority."
Soon, these various check electronification efforts will have a tangible impact on the way in which checks are transported. "Wespay provided jet transport for about six or seven of the financial institutions on the West Coast to get their checks back East," explains Thomas. "By the end of this year, that jet transportation will not be needed—and obsolete."