Information Technology
The Move to Cheque Imaging
Paper cheques are on their way out as digital images and electronic archives are phased in over the next couple of years.
FROM: NOV-DEC 2004 ISSUE | BY JOHANNA WARD
By the end of 2006, all of Canada's financial institutions will convert to a new method of processing cheques known as cheque imaging, or truncation. Instead of processing and storing paper cheques, banks and credit unions will scan the cheques to capture digital images that are then stored in electronic archives.
Spearheading the initiative is the Canadian Payments Association (CPA), a not-for-profit association created by an act of Parliament in 1980 to operate national systems for the clearing and settlement of payments, and facilitate the development of new payment methods and technologies.
Although Canadian financial institutions have long recognized the potential of cheque imaging technology, in the past it was considered too expensive, and too slow to accommodate business requirements. Now, with vastly improved technology and considerably lower costs, cheque imaging has become a viable option for processing and storing cheques.
"The CPA underwent an exhaustive consultative process with stakeholders," says Dawn McGeachy, a public practice associate of CGA-Canada. "The changes will mean a paradigm shift in the industry, and will affect anyone who handles a bank statement."
CPA President, CEO, and General Manager Guy Legault was appointed in March 2003 to head the CPA's 16-member board of directors. Legault, who received his CGA designation in 1986 and was named an FCGA in 1995, served as the president and CEO of CGA-Canada for eight years prior to joining the CPA.
"Canada's cheque clearing system has generally been regarded as one of the world's most efficient," says Legault. "However, the environment is changing. The CPA's cheque imaging initiative will take advantage of technology to modernize the cheque clearing system and ensure Canada keeps pace with other countries." ( See below.)
The CPA currently clears and settles more than $133 billion in transactions each business day. And each day, more than five million paper cheques are moved from one financial institution to another in Canada.
The shift to image-based cheque clearing will not only result in faster and more efficient processing, but allow the introduction of new services for customers, offering greater convenience and quicker access to information about their cheques. The imaging system will also make the detection of fraudulent cheques easier.
Currently, customers deposit cheques at bank branches or through ATM machines. At the end of each day, these cheques are bundled and sent to one of six regional processing centres where the value of each cheque is encoded with magnetic ink. The cheques are then sent to another processing centre, where they are re-sorted to verify the number and total amount of cheques received. Finally, they are sorted by the branch holding the account on which the cheque was drawn.
The process is time consuming and labour-intensive — a cheque that bounces can pass through up to eight reading and sorting machines, and be physically transported up to four times. Electronic clearing systems are less dependent on air and ground transportation networks, making them less vulnerable to delays.
Under the new system, Canadian consumers and businesses will continue to write cheques and deposit those they receive, and financial institutions will still deliver deposited cheques to regional processing centres. There the process will change. The amount of the cheque, the electronic codeline data, and a digital image of the front and back of the cheque will be captured, and a digital image (versus the actual cheque) will be sent to the institution that holds the account on which the cheque was drawn, reducing the transit time to almost nil.
Once the digital image of a cheque has been received by the bank, the paper cheques will be destroyed. Customers, instead of receiving cancelled cheques, will receive an "image statement," a printout of their cheque images, and will also be able to access their cheque images online as part of electronic banking systems. Alternately, cheque images can be put on CD-ROM for customer viewing.
A number of financial institutions in Canada have already made a partial shift to cheque imaging, most notably the credit unions of the four western provinces; delivery of image-based services to business and individual customers has been in place for some time now, and is likely to continue expanding ahead of the 2006 deadline.
For more information on cheque imaging, visit the CPA's website at www.cdnpay.ca.
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International Imaging
- The United States cleared in excess of 42 billion cheques in 2002, more than all the cheques exchanged throughout the rest of the industrialized world.
- Singapore, which has 134 financial institutions and over 500 branches, processes 92 million cheques a year. The country's central banking authority was the first to put an electronic cheque capture program in place in the '80s.
- In Spain, 99.6 per cent of banking transactions in 2000 were cleared without any physical exchange of documents.
- In 1999, 2.8 billion cheques were cleared in the United Kingdom and 810 million in Australia.
- Hong Kong's cheque imaging system is used by seven major banks to process 300,000 cheques daily, or about half the total cheque value in the Hong Kong market.
Source: Canadian Payments Association |
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Johanna Ward is production coordinator of CGA Magazine and a Vancouver-based freelance writer.