FRAMINGHAM (01/15/2004) - Check 21, the banking modernization act signed into law in October, is going to make your CFO happier. By allowing banks to process checks electronically, valid checks will clear faster, and fraudulent or bounced checks will be discovered sooner. And it's going to make you happy too. Congress, by choosing not to include incentives to adopt electronic payments, essentially guaranteed that paper checks will remain dominant for the foreseeable future. That means there's no pressure for most CIOs to invest in new financial systems to pay bills online.
Banks will save money by eliminating check-handling costs and standardizing on an electronic check-processing infrastructure. Today, paper checks are flown cross-country from the depositor's bank to the issuer's, passing through couriers and clearinghouses along the way. A typical check is handled by as many as 20 people before it clears, says John Hall, spokesman for the American Bankers Association. Starting next Oct. 28, banks can scan paper checks and use the electronic document to clear each transaction.
According to a 2002 U.S. Federal Reserve report, the number of checks paid in the United States dropped by 7 billion from 1995 to 2000, while the number of electronic payments increased by 14.2 billion. Peter James, who covers corporate banking for the TowerGroup, says that consumers primarily account for this trend--most businesses still write checks. Because banks will save under the law, the checking fees banks charge corporate customers should decline. James says there's no incentive for banks to push customers toward online payments as a cost-saving measure. The result: little or no change for IT.