Cheque imaging changes could end paper process

Canada’s move to start capturing and clearing cheques electronically next year may see corporate enterprises ending the process of physically transporting cheques from their commercial customers to financial institutions.

Software providers, cheque printers and financial institutions are working to comply with specifications set out by the Canadian Payment Association (CPA), which include the addition of a numeric field date in one cheque format and a mandatory serial number encoded in the bottom of the document.

Such specifications are intended to allow images of cheques to be captured so that paper cheques can be disposed of early on in the clearing process. Sometimes referred to as truncation and electronic cheque presentment, banks would destroy the original cheque and return only its image to the account holder that signed it. The CPA is working with industry and the Department of Finance to introduce this method electronic cheque clearing.

In a report released Tuesday, IDC Canada’s Financial Insights division said electronic cheque imaging would also allow remote deposit capture, whereby financial institutions would set up a physical scanner at their commercial customers’ location, where cheques can be imaged and processed without loading paper versions on a truck.

“There’s a lot of cost in physically moving and matching these things,” said Jamie Sharp, an analyst with IDC Canada in Toronto. “(Remote deposit capture) makes it easier in dealing with the bank, as well as improves security and authentication to prevent fraud.”

Last month, the CPA issued a reminder about the specifications businesses will have to meet for new cheques. In a survey nearly two and a half years ago, most firms said they would be able to meet those requirements and use up their existing cheque supply within a year, according to CPA spokesman Roger Dowdall.

“It probably means a different cheque stock. That’s the paper supply they’re going to get from somebody else, at a minimum,” he said. “What we are really saying now (is that) if a business is getting new cheques printed, any reprints or new orders should be compatible with the new specifications.”

In 2005 Montreal-based CGI was contracted to develop an exchange control system, which would allow the transit of cheque images between banks, for $2 million. Dowdall said that system has been installed in various locations and the CPA is starting to see how well it works.

“From our perspective, because we are dealing with the clearing process, the core testing piece is the inter-financial institution testing,” he said.

Sharp said he learned, in conversation with the CPA’s CIO, that the organization is also working with Sun Microsystems and Symcor to set up a grid computing architecture to manage the demands placed upon the exchange control system.

“They had run into a number of challenges and problems. It has taken longer to get to where they are now than when they had expected,” he said, adding that the CPA lacks a wealth of best practices to follow, even though electronic cheque imaging is already happening in other countries. “Because the cheque clearing process and the entire banking market is so different from the Canadian one, there was limited opportunity to reuse and relearn from the U.S.”

Once integration testing is complete and the transition gets underway in earnest by 2009 however, Canada will be relatively ahead of the game compared to the rest of the world, Sharp said.

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