Reflections on a Decade of Cheque Truncation: What Others Can Learn from the US Experience

by Bob Meara, September 26, 2016
Industry Trends
Global

Abstract

Celent has published a new report titled Reflections on a Decade of Cheque Truncation: What Others Can Learn from the US Experience. The report was written by Bob Meara, senior analyst in Celent’s Banking practice.

Celent offers a retrospective on the US cheque truncation experience to distill principles banks in other jurisdictions can apply to similar initiatives.

The Check Clearing in the 21st Century Act (Check 21) aimed to improve the safety and soundness of the US check payment system. It had nothing to do with products such as mobile deposit that have become such a success. After a slow start, US banks rapidly adopted check truncation because of the manifest and compelling business case for doing so. Regulatory pressure was not needed.

The US experience would have been improved, however, had the industry used cheque truncation as an invitation for wholesale process redesign, rather than an opportunity to simply electronify paper-based processes.

 “Though the US financial services landscape is unique in many ways, other jurisdictions embarking on cheque truncation initiatives can learn much from the US experience,” says Meara.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

The US Retail Banking Landscape

4

A Short History of US Cheque Truncation

7

 

“It Will Take a Decade to Migrate to Image Exchange”

7

 

Check 21 in a Nutshell

9

 

Early Image Exchange: A House Divided

12

 

Why Truncation Will Occur Even Faster in Other Markets

15

 

Key Takeaways

16

Competing Truncation Schemes

17

 

Cheque Truncation’s Impact on Electronic Cheque

23

Distributed Capture: Unintended Consequences

25

 

Branch Capture

27

 

“I’m Not Going to Turn My Tellers into Sorter Operators!”

28

 

“ATMs Will Remain Essentially Cash Dispensers”

29

 

“RDC Is an Unacceptable Risk”

30

Recommendations

37

Leveraging Celent’s Expertise

39

 

Support for Financial Institutions

39

 

Support for Vendors

39

Related Celent Research

40

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