Quicker cheque clearing, reduced fraud and less need for storage space will be among the benefits of a multi-year effort now under way to eliminate most of the paper from the way Canadian banks clear cheques.
The Canadian Cheque Imaging Initiative, which began in 2004, focuses on turning cheques into digital images and frees banks from exchanging close to five million pieces of paper on an average day.
The work, which has involved building specialized imaging appliances and two parallel telecommunications networks to tie them together, is on schedule and the system should be in full operation by the middle of 2009, according to Mark Ripplinger, vice-president of technology and chief information officer at the Canadian Payments Association (CPA). The CPA is spearheading the initiative.
The banks themselves will benefit most from the initiative, said Jamie Sharp, vice-president of customer segments research at International Data Corp. (Canada) Ltd. in Toronto. “There should be a fair amount of operational efficiency,” said Sharp, who recently completed a research report on the project.
Consumers and business customers will notice little difference at first. Some banks have already replaced the cancelled cheques once sent back to customers with electronic images – at present the banks convert cheques after they clear. The only thing many customers will notice is faster processing, said Roger Dowdall, the CPA’s vice-president of communications and education.
“For many of the business clients, it will mean faster access to their cheque and therefore faster reconciliation of their accounts.”
Over time, though, banks are expected to introduce new services made possible by the switch to cheque images.
For instance, when a customer has a problem or question about a cheque, bank employees should in future be able to retrieve an image of the cheque instantly rather than having to track down a piece of paper.
Cheque imaging will open the door to remote deposit capture, in which larger organizations will be able to have hardware on their own premises to scan incoming cheques and relay deposits electronically to their banks. This will cut turnaround time and the cost of delivering cheques to bank branches, Sharp said.
Consumers may eventually scan their own cheques at bank machines. Major automated teller machine manufacturers already offer the capability, Sharp noted, but “we don’t do it in Canada because there’s nothing to do with the image once we capture it.”
It could also affect the banks’ placement of branches. Remote deposit capture might reduce traffic at branches that serve many business customers, Sharp said, and that could affect some decisions about branch openings and closings. The impact is likely to be minor, though – “a one per cent or two per cent difference around the edges,” said Sharp.
Imaging will also help fight cheque fraud, Dowdall said. First, faster processing will mean fraudulent cheques are spotted faster, making life harder for fraudsters. Also, imaging will let the banks enhance an existing service called positive pay, in which large business customers’ cheques are matched against a list, provided by the business, of the cheques issued. At present this process checks only the serial number of the cheque and the amount, which are encoded in magnetic ink on the cheque. With imaging, more information such as the payee’s name can be included too.
Cheque imaging will also mean the signatures on more cheques can be compared with signatures on file, Dowdall added.
Dowdall said one benefit business customers appear to be anticipating eagerly is a reduced need for space to store old cheques. “Many businesses today retain their cancelled cheques for at least seven years,” he said, “and so they have boxes and boxes of them somewhere.”
The Consumers’ Association of Canada has endorsed the effort, as have the Canadian Chamber of Commerce, the Canadian Federation of Independent Business and other business groups. Sharp said he sees no negative effects for business customers or consumers.
On the technical side, the CPA worked with Montreal-based CGI Group Inc. to develop an appliance called the Exchange Control System (ECS) that it will supply to about a dozen participants, including two consolidators that handle cheque clearing for the major banks. The project is using IBM servers, networking gear from Cisco Systems Inc., software from Microsoft Corp., and ConnectDirect data-exchange software from Sterling Commerce of Dublin, Ohio.
“We have two parallel networks – one supplied by Allstream and one supplied by Telus – and they are load balanced,” Ripplinger said. “Each one is configured so it can carry the entire network load.”
The initiative has gone fairly smoothly, Ripplinger said. “We’ve encountered some issues and problems along the way that we’ve resolved.” The CPA has had to address capacity and performance concerns, ensure the ECS appliances can be remotely monitored and managed, and work with Sterling to fit ConnectDirect to its needs, he said.
The United States and several other countries have already switched to cheque imaging. Canada’s banking industry – often a technology leader – has been slower to move in this instance because the small number of banks made Canada’s paper-based system less cumbersome than those of some other countries. “The pain and the operational inefficiencies was less than in the U.S. marketplace,” he said.