Preparing for Check-21ICBA San DiegoFred HerrSenior Vice PresidentRetail Payments OfficeFederal Reserve System

2

Love & Hate

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Love

4

Hate

5

Entering a period of changePain & Opportunity & Nostalgia

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Entering a period of changePain & Opportunity & Nostalgia

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Check-21 & wishful thinking

– Check-21 was written inside the beltway

– Check-21 is supposed to:– make the world a

better place– reduce check

processing & transport cost

– reduce check writing– Wishful thinking won’t

change the fundamentals

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Check-21 & the bottom-line

– Will Check-21:– reduce my operating costs?– reduce fees I pay?– reduce my collection float?– reduce my fraud losses?– retain good customers?– attract new customers?– generate new fees & Net-

Interest-Margin?– make me more competitive?

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Number of non-cash retail payments in the US, 1978-2000 (billions)

Check writing has started to decline

0

10

20

30

40

50

60

70

80

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Check Debit Credit ACH

10Assume 5% annual decline in checks, 12 billion ACH/substitute check conversions in 2010

Hypothetical forecast of the future2002 - 2010

0

10

20

30

40

50

2002 2003 2004 2005 2006 2007 2008 2009 2010

Originals Converted

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Federal Reserve product offerings

– Proof & transit– Image cashletter collection services– Physical cashletter conversion services– Substitute check production & delivery– Physical transit cashletter collection services

– Outbound returns– Image cashletter collection services– Derived returns from FedImage archive– Substitute check production & delivery– Physical return cashletter collection services

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Federal Reserve product offerings

– On-us processing– Image cashletter presentment– MICR presentment with image-to-follow– FedImage truncation service– Physical delivery of originals & substitute checks

– Inbound returns– Image cashletter presentment– Substitute check production– Physical delivery of originals & substitute checks