One-Click Check Presentment (2000)

THE FED AND THE PAYMENT SYSTEM: PART II banks lead the way in the Fed's EPIC electronic check presentment pilot which combines imaging with Internet delivery Malta, Mont., lies about 45 miles below the Canadian border in the northeastern part of the state, where major roads are few, the population sparse, and nature itself can be a formidable opponent. We're remotely located, says Corliss Nelson, cashier of First State Bank of Malta, with a bit of understatement. Yet, First State and a group of other banks are at the very center of state-of-the-art developments in payment systems. Backers of electronic check presentment as part of the solution to the payment system's glut of paper watch very closely, for Federal Reserve efforts there may someday spread, in some variation, throughout the system. With about 200 depository institutions, most of them small, spread over a geographic area as long as the distance between Philadelphia and Chicago, made an attractive proving ground for the Federal Reserve System's EPIC project. EPIC, which stands for Electronic Presentment Internet Checking, is a technology pilot proposed and spearheaded by the staff of the Helena, Mont., branch of the Federal Reserve Bank of Minneapolis. The goal of the Montana Pilot, as EPIC is more commonly referred to in Fed circles, is to set up a completely electronic check payments process throughout the state in voluntary collaboration with the state's financial institutions. The technique of choice is electronic check presentment, accompanied by check imaging provided by the Fed, and internet availability of check images and related records. Building greater acceptability of electronic check presentment has turned into a major goal of the Fed's Payments System Development Committee (ABA BJ, Sept. 2000, p. 42). In early September the committee issued a list of steps to take to build that acceptance. (See page 62.) Electronic check presentment consists of substituting MICR line data for the check itself, so that the actual check need not travel beyond the point where that data is captured. This eliminates much or all of the physical transfer of checks, while still permitting consumers and businesses to make payments using the familiar paper checks they have been using for more than a century. The potential payoffs include increased efficiency, reduced fraud, improved accuracy, and reduced costs. This is electronic check presentment as defined by the Fed, and as practiced in Helena; some private sector electronic check presentment efforts still include the actual check somewhere in the flow. A phased approach The pilot is a testing of legal concepts as well as technological ones. A key issue is ensuring the acceptability of an official replica of a check in lieu of the actual check. The Fed's Helena branch and participating depository institutions are engaged in the program under bilateral agreements that supersede certain laws and rules that would otherwise apply to checking transactions. This temporary legal underpinning would have to be made permanent, in some fashion, before much of what is going on in could be applied beyond the state. The pilot consists of three phases, with participating institutions already engaged in the first two, with the third still under development: * Phase one -- Beginning in June 1999, the Helena Fed began to image capture and archive all checks that pass through it, with the branch now processing an average of 750,000 checks daily, according to Sam Gane, branch manager. At the imaging stage, both MICR line information as well as the front and back of every check are captured. Participating depositories, in their role as paying banks, receive electronic presentment files, rather than checks, and process these as if they had received checks. …