Check 21 Effects on Check Processing Outsourcing

Wednesday 3 March 2004 15:00 CET | News

Paper check origination volume is now declining at a 3% annual rate, with many banks also experiencing year-over-year drops in check processing volumes in excess of 5%.

New research from TowerGroup finds that these declines - coupled with the recently-passed Check Clearing for the 21st Century Act (or Check 21), designed to facilitate the electronic presentment of checks to paying banks - will present a significant challenge to banks relative to traditional check processing strategies. Specifically, banks seeking to take full advantage of Check 21 legislation and electronic check presentment programs must invest in new software and equipment to capture and process check images. Innovations in this process are expected to ultimately drive a further 20-30% drop in check processing capacity requirements, which will translate into severe overcapacity in bank operations facilities and equipment. Although the largest US banks have aggressively outsourced credit card and electronic bill payment transactions, almost all these banks still process checks in house. TowerGroup believes that large US banks should challenge this premise and consider outsourcing their check processing functions. In TowerGroups new research titled, Should Large US Banks Outsource Their Check Processing? discusses the decline of check transaction volume and the increase of processing overcapacity. The report also examines the issues involved with large banks outsourcing check processing and identifies effective outsourcing models considered by financial institutions.

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Categories: Payments & Commerce | Payments General
Countries: World
This article is part of category

Payments & Commerce