Contemporary Bank Check Alternatives
Download 131.07 Kb.
|
- Navigate this page:
- 8.1 European GIRO
- 8.2 Bank Checks
- 9. Conclusion
- 10. References
8. Foreign SystemsIn this section, foreign methods of money transfer will be discussed. In addition to being interesting from an academic standpoint, this will provide useful ideas that can be applied to the United States. Australia, Canada, France, the United Kingdom and the United States rely heavily on bank checks as a medium for funds transfer while Japan and the rest of Europe employ direct funds transfer methods [22]. The direct credit funds transfer method most commonly used abroad is the GIRO system. These are initiated by the payer. When such a transfer is initiated by the payee, it is known as a debit transfer. Domestically, these types of transactions are ACH transfers. Additionally, the third and final major method of payment is physical cards – both debit and credit. 8.1 European GIROGIRO is a direct funds transfer method that is offered across most of Europe. Although it is paper-based, it is far more efficient than American bank checks. How It Works GIRO services are generally available to bank account holders in Europe. Upon opening an account, users receive a package of GIRO vouchers. When a user purchases a good or service, the counterparty sends the user an invoice containing the invoice number, counterparty’s name and address, bank account number, and required payment amount. This information is transcribed by the user onto the GIRO voucher and either mailed to the user’s bank or physically brought to the bank [21]. Banks have begun to utilize the internet for such transactions, allowing users to submit GIRO information via the web.
A description of the methods underlying paper-based GIRO processing in Switzerland at Credit Suisse was obtained from the website of FileNet, the firm that handles such processing. “At Credit Suisse, the new GIRO process begins when bank customers mail payment vouchers to one of three bank centers in Zurich, Bern, and Geneva. There, an average of 40,000 vouchers are scanned into the FileNET system each hour using Elsag Bailey high-speed SlamNet scan stations. After scanning, an ICR (Intelligent Character Recognition) engine called Emma2 automatically reads the data on the voucher. Errors or vouchers that cannot be read by Emma2 are sent to a post-processing unit where an operator can correct or manually enter data. Afterward, the data from the ICR process is sent to Credit Suisse’s host mainframe for payment processing. The image of the voucher and the ICR data are then stored in FileNET’s OSAR (Optical Storage and Retrieval) library, where IMS software manages the archiving and subsequent retrieval of the images and corresponding data associated with each voucher transaction. In addition to Elsag Bailey’s SlamNet and the Credit Suisse mainframe, another system integrated with FileNET’s IMS software is a signature verification system called SignBase from APP Infomatik. This verifies signatures on vouchers with amounts that exceed a threshold limit. Another product, SignCheck, automatically compares the signature on the voucher image stored in the FileNET OSAR library to the signature stored in the SignBase database. If a signature cannot be automatically matched, or when an exception occurs, an operator conducts a manual comparison.” [20] Commentary GIRO most similarly resembles an ideal check processing system designed from the ground up. It operates fairly similarly to bank checks yet takes advantage of many modern electronic efficiencies. However, it would be unnecessary to implement such a system in the United States. Besides the fact that the infrastructure and knowledge base simply does not exist for GIRO, the marginal value of GIRO over improved bank check processing is relatively minimal. Advantages:
Disadvantages:
Figure 8. Volume of Funds Transfer Payments [22] 8.2 Bank ChecksThe first part of this section will discuss foreign bank check systems in general. The second will zero in on specific cases. General Description As discussed previously, bank check processing is an inherently costly and time-consuming process. Some countries, particularly the Nordic European ones, have dealt with this problem by imposing penalties for their use. This has proven to be extremely successful as they have managed to steer their populace into almost exclusively using alternative methods of payment. Many of the countries have also sought to reduce the costs associated with bank check processing. One method is known as electronic check presentment (ECP) in which check information is routed electronically. “Electronic information typically includes a routing or identification number for the paying bank, the account number on which the cheque is drawn, and the serial number and amount of the cheque. Additional information may include signature or endorsement information, as well as information regarding intermediary banks.” [23] However, physical presentment might still be required after the fact due to legal reasons resulting in ECP without check truncation. The check would still physically be sent; however, it would be sent after the fact and would not be required for processing. In the case of many countries, one or both of these cost cutting methods is allowed for checks whose value falls below a certain threshold level. Above that level, physical inspection and processing of checks is still required. Potential problems do exist with such electronic cost cutting methods. For one, electronic transmission of a large number of digital files can prove to be a significant cost. For another, digital images do not offer the same security as physical checks. “Electronic images, however, may not provide exact copies of all aspects of a physical cheque, although both image technologies and banking practices are evolving rapidly. For example, certain endorsements on the back of a cheque may be captured imperfectly by an image. Fraudulent alterations of a cheque or physical tampering with the document may also be more difficult to detect than in the case where a physical examination of a cheque (ascertaining that the paper is of a certain quality and weight, for example) is possible.” [23] Specific Cases Sweden: “Swedish banks have implemented a clear policy of reducing the number of cheque payments, because these are considerably more costly than alternative means of payment, such as credit cards. To this end, one of the major banks introduced a rather high charge (SEK 15 or €1.7) on all cheque transactions at the beginning of the 1990s. The other banks subsequently followed this example and also imposed heavy fees, with the result that the use of cheques has been drastically reduced.” [24] As a result, only 4 million checks, a miniscule number, are used each year in Sweden, a country with a population of roughly 9 million people. Norway: Norway has followed a similar track to that of Sweden. It has implemented policies designed to discourage bank check use. However, rather than attempt to prevent their use entirely, Norway has taken a more even-keeled approach by instead making transaction costs representative of their true costs. “Norwegian banks have been encouraged by the central bank to institute per transaction fees that increasingly reflect the differential bank costs of producing different types of payments.” [26] Canada: The Bills of Exchange Act and the Canadian Payments Association Act of 1980 prevent check truncation in Canada. ECP is allowed, but only for provisional settlement; final settlement requires the physical check. However, in the case where the paying and receiving banks are the same financial institution, truncation is legal. Belgium: “In Belgium, the first country to implement cheque truncation in the mid-1970s, truncation is mandatory for low-value items, with information converted to electronic format and processed through the Centre for Exchange and Clearing (CEC), the country’s ACH. Cheques are truncated at the collecting bank and copied onto microfilm; the paper item is destroyed at the end of six months. In the event of a dispute, the physical cheque (or after six months a microfilm copy) is returned to the paying bank. High-value cheques are subject to manual procedures.” [23] Germany: Truncation of low-valued checks, those with a value below approximately twenty-five hundred Euros, first became legal in 1985. In 1998, it became mandatory with the implementation of the “Agreement on cheque collection.” “According to the agreement, the first bank involved converts the submitted cheques on the basis of the information contained in the code lines, microfilms the original cheques and collects - possibly using the clearing and settlement facilities of the Bundesbank - the value in paperless form.” [23] For higher valued checks, the GSE Procedure is used and the Bundesbank exclusively handles processing [23]. 9. ConclusionThe bank check system is at a crossroads. The industry is moving away from its current state in which processing is inefficient and use is widespread. Instead, there are two simultaneous and separate tracks that are being followed. Track I Track I represents the scenario in which bank check processing is made more efficient through the use of truncation and ECP. Much of this work is being handled by the public sector. In addition to the iCheck system that was previously mentioned, the Federal Reserve has also proposed a law to Congress that “would facilitate check truncation. The proposed Check Truncation Act is designed to foster payments system innovation and enhance the efficiency of the payments system by reducing some of the legal impediments to check truncation that exist under current law.” [19] With the proposed changes, checks could be transmitted electronically from location to location without requiring costly and time-consuming physical shipment. At the same time, the law would not mandate that checks be dealt with in that manner. These changes would also have far reaching implications by allowing greater innovation. As the graph below shows, the US is by far the greatest user of checks on a per capita basis. At the same time, ironically, the US has some of the least developed bank check processing techniques. The proposed changes would help to ameliorate that situation.
Track II represents the scenario in which bank check use is fazed out in favor of faster, cheaper, and for the most part, better alternatives. The private sector is handling much of the work for this track. Among the alternatives, B2C and C2B (one-time) have been around the longest and have had the greatest market penetration. At the same time, they currently have the least room for growth. C2C and C2B (recurring) alternatives on the other hand are newer, and in many ways more exciting. C2C in particular, with its market leader Paypal, has the capability to revolutionize the way that commerce is conducted. Its Mobile Phone Payments system might even prove to be as ground-breaking as the credit card, with the help of the increasingly ubiquitous cell phone. C2B (recurring) alternatives have not met with the same success as C2C alternatives. That is not to say, however, that they will not eventually be successful. Their growth rate is more likely to mirror that of traditional technologies as it is faced with the chicken-and-egg expansion problem. 
Figure 10. Transaction Times for Alternatives vs Standard Bank Checks Overall Solution The best case scenario would be for check use to be phased out and for alternatives to replace them. Of course, with the domestic infrastructure for check use in place as well as consumer habits firmly entrenched, this is no easy task. However, steps can be taken to improve the situation in the near term. The wheels are already in motion to implement Track I while steps can be taken to assist Track II. For this, we can look to the example of Sweden and Norway. The U.S. should implement marginal costs for bank check use that at the very least imposes fees for use that are representative of true cost. This should definitely be done at the bank level and possibly at the retail level as well. For example, a customer using a check to purchase an item at a store should be charged by his/her bank for the processing cost of that check. The retailer might also choose to add a surcharge for its own processing cost. In this manner, transaction use would more closely follow free market economics and the costs to society would be minimized. At the more extreme level, as is the case with Sweden, disproportionate fees could be imposed that would discourage bank check use altogether. This is dangerous for a number of reasons. For one, this would undoubtedly cause a public backlash as consumers accustomed to having free use of bank checks would likely be infuriated by the new costs. Additionally, it is doubtable whether the bank check alternatives have the infrastructure in place to handle the inevitable onslaught of customers that such a move would cause. For example, the CheckFree service currently has the capability to handle a maximum of thirty million customers [17]. While this number is far greater than its present client base, it is not enough to handle a significant portion of the U.S. C2B (recurring) market. Thus, it would be safer to make implementation of fees a gradual process rather than a sudden shock. 10. References[1] Figueroa, Joseph N. “iCheck: An Architecture for Secure Transactions in Processing Bank Checks”. June 1997. [2] “Understanding The ACH Network: An ACH Primer”. http://www.nacha.org/OtherResources/buyers2002/BG_ACH_Primer.pdf [3] Interview with Premal Shah, Paypal (650) 248-7736 [4] Paypal Website http://www.paypal.com [5] Marlin, Steven. “Check Processing Gets A New Image.” May 6, 2002. http://www.banktech.com/story/whatsNews/BNK20020506S0002 [6] CheckFree consumer website http://www.checkfree.com [7] Interview with Bob Miszkiewicz, Sr. Sales Executive, First Data (201) 476-5745 [8] Stefanadis, Chris. “Why Hasn't Electronic Bill Presentment and Payment Taken Off?” Current Issues in Economics and Finance, July/August 2002, Volume 8, Number 7. http://www.newyorkfed.org/rmaghome/curr_iss/html/civ8n7/civ8n7.html [9] Direct Deposit website www.directdeposit.org [10] Selby, Jack R. Vice President of Corporate Development, Paypal. “Paypal.” http://www.chyp.com/forum/mpapers4/selby.pdf [11] Matthews, Deborah. “Financial Institutions Partnering With Corporations: Innovative Strategies For Promoting Direct Deposit.” http://www.nacha.org/OtherResources/buyers2002/BG_Innovations.pdf [12] Cardweb.com Inc. www.cardweb.com [13] “Debit Cards: PIN or Sign?” American Financial Services Association. August 2002. http://www.spotlightonfinance.org/issues/August02/Stories/story5.htm [14] “Debit Card Use Grows vs. Credit Card Use.” American Financial Services Association. January 2002. http://www.spotlightonfinance.org/issues/January02/Stories/story8.htm [15] National Payment website www.directdeposit.com [16] Tinucci, Joseph D. “Business Case for Consumer Direct Deposit / Direct Payment.” A Study for NACHA and the Direct Deposit and Direct Payment Coalition. 2001. http://www.nacha.org/OtherResources/tinuccistudy01.doc [17] CheckFree corporate website www.CheckFreeCorp.com [18] Spinner, Jackie. “The Check’s Last Writes.” Washington Post. February 9, 2003. [19] Proposed Check Truncation Act. Federal Reserve Board. March 14, 2003. http://www.federalreserve.gov/paymentsystems/truncation/default.htm [20] “Banking - GIRO Payment Transaction Processing.” FileNet. http://www.ufc.com/XMLData/Data_Files/SwissBank.pdf [21] “Bank GIRO Credit Collection.” PacNetServices. http://www.pacnetservices.com/bankgiro.html [22] “Retail Payments in Selected Countries: A Comparative Study.” Bank for International Settlements. September 1999. http://www.bis.org/publ/cpss33.pdf [23] “Clearing and Settlement Arrangements For Retail Payments in Selected Countries.” Bank for International Settlements. September 2000. http://www.bis.org/publ/cpss40.pdf [24] “Blue Book Sweden.” European Central Bank. June 2001. http://www.ecb.int/pub/bluebook/BlueBook01Sweden.pdf [25] Gupta, Amar. “Technology – Check Processing.” LokVani.com. February 2003. [26] Humphrey, David B., Keppler, Robert and Montes-Negret, Fernando. “Cost Recovery and Pricing of Payment Services: Theory, Methods, and Experience.” World Bank. August, 1997. www.worldbank.org/html/dec/Publications/Workpapers/WPS1800series/wps1833/wps1833.pdf Directory: profit -> htdocs -> thesis thesis -> Design and Implementation of Fisheye Routing Protocol for Mobile Ad Hoc Networks by profit -> Extra Titles profit -> P. O. Box 210108 Tucson, az 85721-0108 profit -> Three Trends Dealerships Must Not Ignore in 2016 Download 131.07 Kb. Share with your friends:
|
