Abstract:
A method and system for electronically clearing financial instruments may include receiving electronic files of items containing data scanned from financial instruments including an amount of each instrument, and applying a rule to sort the items by determining whether the item may be stored or forwarded for clearing without storage. The rule may include determining whether an amount of the instrument exceeds a predetermined value, and if so, forwarding the instrument for clearing, or if not, storing the item for forwarding at a later time when the per item fee for clearing is lower. The system may include a control for receiving electronic files from a scanning device and applying a rule to sort the files by determining whether each file should be stored or forwarded and an image export server for converting the files to a preferred format and transmitting them for clearing.

Description:
BACKGROUND 
     This disclosure relates to methods and systems for processing electronic documents and, more particularly, to methods and systems for processing financial instruments through an electronic clearing system. 
     The Check Clearing for the 21st Century Act, or Check 21 Act, was signed into law on Oct. 28, 2003. Provisions of the Act took effect on Oct. 28, 2004. This law allows a financial institution to receive a paper check, create a digital version of that check that includes a digital image of the check, and transmit the digital version of the check to another financial institution, such as the payee bank. The recipient institution may convert the digital version of that check back to a paper check, called a substitute check. 
     The ability of banks, the Federal Reserve (“Fed”) and other financial institutions to work with digital check images has facilitated the presentment and clearing of financial instruments. It is no longer necessary for retailers, banks or other financial institutions to transmit paper checks for the clearing process in order to receive payment. Rather, banks and other financial institutions may utilize electronic clearinghouses, such as Small Value Payment, Co. LLC, to facilitate the high-speed and reliable image exchange between member banks and financial institutions. 
     The Fed, the central bank of the United States, also provides electronic check clearing services for member institutions. A per item fee is assessed to banks and other financial institutions utilizing the Fed for clearing checks. As a result of variations in traffic volume over the course of a business day, the Fed charges per item fees for clearing checks that vary depending upon the time of day and the day of the week. 
     For example, the fees listed in the table of  FIG. 3  are taken from the Fed&#39;s 2008 FedForward Fee Schedule. The table shows the per item fees charged for a mixed image cash letter for Tier 1 electronic endpoints. (The listing is simplified from the actual schedule and does not show, for example, availability of services by day of the week, or per item fees for Tier 2 and Tier 3 electronic endpoints.) As shown in the table of  FIG. 3 , each banking day contains many deadlines for sending check items to be cleared by the Fed. Checks forwarded for clearing by the 3:00 p.m. deadline are charged $0.010 per item. Checks forwarded for clearing by the 6:00 p.m. and 8:00 p.m. deadlines are also charged $0.010 per item for items in a mixed image cash letter. Although the per item fees are the same for items forwarded for clearing to Tier 1 electronic endpoints after the 10:00 a.m. deadline, through the 3:00 p.m. and 6:00 p.m. deadlines, to the 8:00 p.m. deadline, the intermediate deadlines have associated with them fees for other operations, such as clearing items to substitute check endpoints, that vary from one deadline to the next. 
     Referring again to  FIG. 3 , the most expensive per item fee is assessed to check items cleared to Tier 1 electronic endpoints after the 4:00 a.m. deadline and before the 10:00 a.m. deadline, where the fee is $0.065 per item. It is less desirable to clear checks after the 7:00 a.m. deadline and before the 10:00 a.m. deadline because of issues of poor availability, even though the per item fee is the same. In contrast, the per item fee for items cleared to Tier 1 electronic endpoints by the 3:00 p.m., 6:00 p.m. or 8:00 p.m. deadlines are the cheapest at $0.010. Therefore, it may be desirable to clear check items to meet those deadlines. 
     SUMMARY 
     The disclosed method and system preferably may be used for processing data, scanned or otherwise obtained from financial instruments. In one aspect, the method and system disclosed may be used for clearing financial instruments through a clearing system of a type in which a cost of clearing an instrument varies with the time of day. Financial instruments are scanned and files of items pertaining to the instruments are created. The items may include information pertaining to the financial instruments, including an amount of each instrument. The disclosed method may include the steps of receiving files of scanned financial instruments and applying a rule to sort the items in the electronic files by determining, for each of the instruments, whether each item in a file should be stored or forwarded for clearing the instrument without storage. 
     The stored items may be held for clearing before a later deadline when the per item rates for clearing such instruments are lower. Thus, by holding some instruments for clearing at a later time in which the per item clearing cost is lower, the financial institution implementing the method may save clearing costs. The rule applied to sort items may include a step of determining whether an amount of the instrument represented by the item exceeds a first predetermined value, and if the amount of the instrument does exceed the predetermined value, the instrument may be forwarded for clearing without storage. 
     In contrast, if the amount of the instrument does not exceed the predetermined value, the associated file may be stored for forwarding at a later time in which the per item fee is less. This process may be used to sort financial instruments into pockets in which high-cost instruments, for example checks for $1000 or greater, may be forwarded for clearing promptly, whereas checks for less than $1000 may be stored for later clearing during a time of a lower per item fee. 
     Another embodiment of the disclosed method and system addresses the Fed delay in clearing checks that must be transmitted to certain endpoints. The Fed publishes a list of endpoints by ABA (American Banking Association) bank numbers, and for endpoints in certain geographic areas, the Fed requires an extra day to clear checks transmitted for clearing to such endpoints. This may be due to a variety of factors, such as the proximity of one or more of the endpoints to a Federal Reserve Bank. In another aspect, the rule applied by the system to received files of items of financial instruments may include a step of determining whether an instrument is drawn on a financial institution at one of such endpoints, and if so, storing the associated item for forwarding at a later time in which the per item fee is lower. This rule may be implemented since the clearing process would not, in any event, result in an immediate clearing of the financial instrument due to the location of the payee bank endpoint on which the instrument is drawn. 
     In another aspect, the rule applied by the system may include determining whether the instrument in question is issued by the United States government, and if so, forwarding the instrument for clearing without storage, regardless of the amount. This rule may be implemented since the Federal Reserve does not charge a fee for clearing United States government checks that are deposited in separate cash letters. 
     In another aspect, the rule applied by the disclosed system may include a store or send threshold amount that varies depending upon the time of day the item in question is received. For example, items less than or equal to $350 received after 12:01 a.m. and before the 2:00 a.m. deadline may be stored for forwarding at a later time having a lower per item fee, while items greater than $350 received during that time interval may be forwarded immediately to the Federal Reserve for clearing. If an item is received after 2:00 a.m. and before the 4:00 a.m. deadline (thus having a higher per item clearing fee than assessed after 12:01 a.m. and before the 2:00 a.m. deadline), it may be forwarded only if it exceeds $650. If an item is received after 4:00 a.m. and before the 7:00 a.m. deadline, the per item fee is higher, and the threshold at which an item may be sent immediately for clearing by the Fed may be raised to greater than $1000. 
     The interval after 7:00 a.m. and before the 10:00 a.m. deadline has the highest per item Fed clearing fee and poorest availability, and in one aspect, the rule employed by the disclosed system and method may dictate that the system not send any items for clearing. In contrast, the interval after 10:00 a.m. and before the 3:00 p.m. deadline has the lowest per item Fed clearing fee, and in one aspect of the disclosed system and method all items received during that time interval may be forwarded immediately to the Fed for clearing. Further, all items held in storage that were received during earlier, more costly time intervals may be forwarded for clearing during this time interval. 
     The system for performing the method may interface with a device for scanning financial instruments and creating electronic files containing items associated with each of the instruments containing information that may include an amount of each instrument, payee bank, routing number and an electronic image of the instrument. The disclosed system may include a control system for receiving electronic files from the scanning device and having a processor programmed to apply a rule to sort the items by determining, for each of the items, whether the item should be stored or forwarded for clearing the instrument without storage. In one aspect, a scanning device may scan a MICR (magnetic ink character recognition) line, amount, account number, user field, check number, serial number, flag and routing/transit number from the instrument and create an associated electronic file. 
     The system may further include a gateway server for receiving files of scanned financial instruments from the scanning devices and transmitting the electronic files to the control system. The system also may include an image export server for receiving the files from the control system converting the files to a preferred format, such as X9.37, storing the files in storage, retrieving the files from storage for clearing and transmitting the associated electronic files to the Federal Reserve or other clearing service provider. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         FIG. 1  is a schematic diagram showing the disclosed system for clearing financial instruments; 
         FIG. 2  is a flow chart showing the method for clearing financial instruments embodied in the system of  FIG. 1 ; 
         FIG. 3  is a table of deadlines and fees for per item check processing taken from the 2008 FedForward Fee Schedule for Tier 1 electronic endpoints in mixed image cash letters; and 
         FIG. 4  is a flow chart showing the application of rules for sorting check and other financial instrument files. 
     
    
    
     DETAILED DESCRIPTION 
     As shown in  FIG. 1 , the disclosed system for clearing financial instruments, generally designated  10 , may be configured to receive electronic files from regional check processing centers  12 ,  14 ,  16 ,  18 . At such check processing centers  12 - 18 , paper checks may be scanned to read the MICR line, the amount of the checks, the account number, the user field, the check number/serial, flag, and routing and transit number. This information may be used to create an electronic file for each check, preferably in X9.37 format, that preferably includes images of both sides of the check. The files of scanned checks may be transmitted along with an electronic cash letter, a report that accompanies the checks transmitted to a bank or other financial institution or the Federal Reserve. The cash letter report may include the amount of each check, the sequence number, bundle totals (count and amount) and the grand total of the cash letter (count and amount). 
     While the disclosed method and system are described with reference to the transmission of electronic checks, it should be understood that the disclosed system and method also may be used with other types of financial instruments, and use in connection with such other instruments is within the scope of this disclosure. 
     The regional check processing centers  12 - 18  may receive paper checks from banks, savings and loans, credit unions, other financial institutions, retailers and the like. However, it is within the scope of the invention to provide the system  10  with electronic files of checks from other scanning devices. The scanned checks from processing centers  12 - 18  may be transmitted by means of networks  20 ,  22 ,  24 ,  26  to a local area network (LAN)  28 . It is within the scope of the disclosure to utilize the Internet, preferably by way of a virtual private network, as opposed to private networks to transmit electronic check images. Further, although not shown in  FIG. 1 , the LAN  28  may be protected from incoming data transmissions by conventional means such as firewall servers. 
     The system  10  may include a gateway, generally designated  30 , that may include a server  32  (incorporating, for example, the IBM TotalStorage NAS Gateway  500  system), transaction server  34  and image export server  36 . The image export server  36  may communicate with a storage device  38 . The server  32  may function as a gateway to a storage system created by the gateway  30 . A typical storage device  38  may include a distributed check image management system provided by Carreker Corporation and consist of an IBM R/S 6000. 
     The system  10  also may include a check processing control system, generally designated  40 . The check processing control system may include a commercially available module  42 , such as CheckLink, provided by Carreker Corporation, which processes checks in electronic form. The check processing control system  40  also may include a module  44  that may perform a sort function upon incoming check image files by applying business rules. The sort function may place incoming check image files into two pockets: a first pocket in which the check image files may be sent to the gateway  30  for clearing, and a second pocket in which the check image files may be sent to the gateway for storage in the storage device  38  by the image export server  36 . Checks sent for clearing are transmitted by the gateway  30  to the network  28  and on to the Federal Reserve clearing system  46 . The transmission over network  48  may be by a private network or the Internet. 
     The process performed by the system of  FIG. 1  is shown schematically in  FIG. 2 . As indicated in block  50 , the process may begin when paper checks are scanned at the regional processing centers  12 - 18  ( FIG. 1 ). The scanning process may read the MICR line and other data such as the amount, account number, user field, check number/serial number, flag and routing/transit number from the check. The scanning also may include the creation of an image of both sides of the check itself. This data may be written in X9.37 format and sent by way of the networks  20 - 26  to the LAN  28 , along with a cash letter summarizing the instruments scanned and sent, as indicated in block  52 . The electronic files embodying the check data and images may be sent to the gateway  30  where it is received by gateway server  32 . The gateway server  32  sends the check images, data and cash letter to the check processing control system  40 , where the electronic check presentment function  42  converts the format to an I-string, as indicated in block  54 , so that the individual checks can be sorted. As indicated in block  56 , the check image files may be checked for accuracy and completeness, and as indicated in block  58 , the defective image files may be flagged and corrected. 
     The electronic check presentment function  42  then creates an M-string, which is a merging of images from the I-string with corrected reject data. The function also may generate reports that reconcile and balance the input to ensure that all check items have been captured. 
     As indicated in block  60 , the sort function  44  of the check processing control system  40  may apply business rules to the check image files, and a sorting function performed on the items in each file. The check files may be sorted into two groups, a first group that may be sent directly on for clearing by the Federal Reserve without storage, and a second group that may be stored in storage  38  for clearing at a later time. Once the sort function has been performed by the module  44 , as indicated in block  62 , the check image files may be sent to the image export server  36  of the gateway  30 . The image export server may then convert the files back to the X9.37 format, as indicated block  64 . If an image file has been sorted into the aforementioned first group, as indicated in block  66 , that image file may be forwarded by the image export server  36 , through the gateway server  32  to the Federal Reserve  46 . If a check image falls into the second group, as indicated in block  68 , the image export server  36  may store the image in storage  38 . The image export server may retrieve the check image file at a later date, which may be the next business day, for transmission through the gateway server  32  to the Federal Reserve  46  for clearing. 
     The application of sorting rules by the sort function module  44  is shown in  FIG. 4 . As indicated in block  72 , the electronic check presentment module  42  may receive check image files from a regional check processing center  20  (see  FIG. 1 ) and read the pertinent information from the check image files, such as the MICR line, the amount, the account number, user field, check number, serial number, flag and routing/transit number. As indicated in block  74 , the sort function module  44  then may determine that the files have been received after the 10:00 a.m. deadline but before the 3:00 p.m. deadline. As shown in  FIG. 3 , that is the time of day with the lowest per item fees charged by the Federal Reserve  46  for clearing check items. Accordingly, as indicated at block  76 , the rule may provide that all check items received during this interval are forwarded or sent immediately and not stored for later routing to the Fed. Such a rule may require that such time intervals and fees be stored in the check processing control system  40  as a look-up table to be accessed by the sort function  44 , or stored as a sort pattern. 
     Referring again to  FIG. 4 , as shown in block  78 , the rule may determine from scanned information whether the subject check is a check drawn on the United States government (which may include eligible Treasury items and Postal Money Orders). If so, that check image file may be sent by the check processing control system  40  to the image export server  36  for immediate clearing with the Federal Reserve  46 . This is because the Federal Reserve does not charge a per item fee for checks drawn on the United States government if they are deposited in a separate cash letter. Accordingly, there may be no benefit to storing such checks for clearing at a later time. Such checks may be sent for clearing, as indicated in block  80 . It should be noted that since the steps performed in blocks  74  (immediate forwarding of all check items received after the 10:00 a.m. deadline and before the 8:00 p.m. deadline) and  78  (immediate forwarding of all United States government check items) have the same result, they may be performed chronologically in either order. 
     As indicated in block  82 , the rule applied by the sort function module (see  FIG. 1 ) may include a comparison of the routing/transit number of the check item to the Availability Schedule of the Federal Reserve  46 . Such endpoints may be listed in a look-up table as part of the check processing control system  40 . If the endpoint (i.e. payee bank) is on the list of the Fed&#39;s “next day” endpoints, then, as indicated at block  84 , the item may be held in storage  38  ( FIG. 1 ) until the next, lowest per item clearing fee time interval. As indicated in the table of  FIG. 3 , that time interval may be after the 10:00 a.m. deadline and before the 3:00 p.m. deadline. 
     As shown in block  86  in  FIG. 4 , if the check item does not meet any of the criteria of blocks  74 ,  78  or  82  (i.e., the item is not a government check, not drawn on a bank on the Fed schedule of next day endpoints and has missed the 8:00 p.m. deadline), the rule applied by sort function  44  may determine whether the check item was received, and therefore can be forwarded, after the 12:01 a.m. deadline and before the 2:00 a.m. deadline. If it has, then as shown in block  88  the rule may determine whether the amount of the check item is greater than a threshold amount, such as $350.00. If it is, then as indicated at block  90  the check item may be forwarded during that time interval to the Federal Reserve  46  for clearing. If the check item is less than $350.00, as shown in block  92 , the item may be held in storage  38  for forwarding during a time having with a lower per item fee, such as after the 10:00 a.m. deadline and before the 3:00 p.m. deadline. 
     As shown in block  94 , if the check item is received after the 2:00 a.m. deadline but before the 4:00 a.m. deadline, and can be forwarded during that time period, the rule applied by the sort function  44  may determine whether the amount of check item is greater than a second threshold amount, such as $650.00, as shown in block  96 . If it is, then as indicated in block  90  the item may be sent to the Federal Reserve  46  for clearing. If it is not, then the item may be held in storage  38  for sending at a later time during which the per item fee is lower, such as after the 10:00 a.m. deadline and before the 3:00 p.m. deadline, as indicated at block  92 . 
     As shown in block  98 , if the check item is received after the 4:00 a.m. deadline and before the 7:00 a.m. deadline, and can be forwarded during that time interval, the rule applied by the sort function  44  may determine whether the amount of the check item is greater than a third threshold amount, such as $1000.00, as shown in block  100 . If so, then as indicated in block  90  the item may be sent for clearing to the Federal Reserve  46 . If not, the item may be held in storage  38  for sending at a later time during which the per item fee is lower, such as after the 10:00 a.m. deadline and before the 3:00 p.m. deadline, as indicated at block  92 . 
     The per item fee charged by the Federal Reserve  46  may be the highest for check items cleared after the 7:00 a.m. deadline and before the 10:00 a.m. deadline. If files containing check items are received by the system  10  between that 7:00 a.m. deadline but before the 10:00 a.m. deadline, then as shown in block  102  the rule or sort pattern applied by the sort function  44  may hold all check items in storage  38  until a later time at which the per item fee is less, such as after the 10:00 a.m. deadline and before the 3:00 p.m. deadline, as shown in block  92 . Alternatively, the rule may hold check items for storage whose amounts are below a fourth threshold amount. 
     It should be noted that the forgoing deadlines and threshold amounts are provided by way of example, and that other deadlines and threshold amounts may be selected without departing from the scope of the invention. Further, the time intervals used in the disclosed method are reflective of the per item fee schedule charged by the Federal Reserve. Combinations of threshold amounts and holding or delaying the sending of check items for clearing by the Federal Reserve may be derived from the disclosed system and method to maximize savings in processing fees in comparison to a system where check items are forwarded for clearing immediately upon receipt regardless of amount or the time of day received. 
     The foregoing system and method describe a process for the electronic processing of check image files for eventual clearing by a clearinghouse or other check clearing provider, such as the Federal Reserve, which charges a per item clearing fee that varies with the time of day, in a manner that results in a cost savings to the bank or financial institution that performs the check processing function. 
     While the methods and systems described herein constitute preferred embodiments, it is to be understood that other systems and methods may be employed, or modifications may be made of the disclosed method and system, without departing from the scope of the invention.