Re: Bank Float May Sink

[Alanslater]

Lynn --

It would be incorrect to associate Substitute Checks in any way with the FSTC e-check project.  Several years ago, I created the concept of Substitute Checks as a way to overcome the obstacles the industry faced in implementing truncation projects.  On the surface, the concept is anti-intuitiive and defies logic (we're in the process of solving the problem that it was also illegal) -- but it works.  

Simply put, the concept allows an entity to digitize the image of a check, place that digitized image into the payments system and then, most importantly, gives the paying bank the option of accepting the digital image or re-creating a paper copy, including MICR, for payment.  The Check Clearing for the 21st Century Act gives the same legal standing to the digital image or re-created paper copy as the original paper copy now has.

There are profound implications for this.  Reduction in float is one of the minor benefits.  There are significant benefits that accrue to consumers, banks and businesses from substitute checks.  Consider the benefits to consumers if the checks they deposit at an ATM are digitized.  Since banks no longer have to physically pick up checks daily during very tight timeframes, checks deposited up to say 7pm could be processed the same day (currently many banks use a noon cutoff).  This would make the funds from the deposited checks available a business day sooner and would earn them additional interest.  Banks could accept deposits for other banks thereby providing the other banks customers additional time-place convenience without increasing in fact decreasing the other bank's risk of returned checks.  Merchants could be empowered and paid to accept deposits further increasing consumer convenience.

With digitized images, banks could verify signatures and look for signs of fraud at the time of deposit and make decisions about availability on the spot.

Post offices could be used to create the digital images of payments thereby eliminating physically moving the mail  in addition to physically moving the paper check.

For overseas payments, US checks become readily accepted payment vehicles because the foreign countries can present these checks electronically as if they had an office in the US down the block from the paying bank.

I can go on for a long time about the benefits of this type of payment but I'll end it here.  However, if you have any ideas about how we should handle checks presented in Hong Kong at 9 a.m. local time which are presented in the U.S. on the day before they were written, I'd like to know.

Regards,

Alan