Overview

As most bankers are aware, the Check Clearing for the 21st Century Act took effect on October 28, 2004. Simply put, Check 21 is a law designed to improve the overall efficiency and security of the U.S. check clearing process by encouraging the use of imaging technology and by requiring banks to accept substitute checks, or Image Replacement Documents (IRDs), produced from a digitally scanned image of the original check, just as they currently accept original paper checks today, if they are not prepared to accept electronic check images.

If your bank currently uses DCI image processing services, and provides imaged checks and/or statements to your customers, your bank will benefit the most, and be impacted the least, by Check 21.

If your bank now includes original checks in your customer statements, yours will be one of the institutions most heavily impacted by Check 21. If any depository bank in the chain of presentment truncates an original check and turns it into an image, you will receive an IRD paper substitute of that check to include in your customer statement. As more and more banks adopt the techniques that Check 21 enables, you are likely to receive a greater percentage of inclearing items as substitute checks. While DCI has the capability to handle IRD substitute checks, we will not be creating them. IRDs will most likely be printed by the Federal Reserve Bank. Also, as the volume of checks declines, and other institutions pass along the fees to generate IRDs, the cost per item is expected to increase dramatically, reducing your profit margins by being dependent on collecting and returning paper checks.

However, it is a good time to adopt imaging technology for Check 21 to control item processing costs and begin providing customers with images of checks rather than the originals. When the law takes effect, you can accept inclearing items in image form and your dealing with substitute checks will be limited.

How DCI Can Help

DCI is well prepared to help you comply with the Check 21 laws and take advantage of its extended benefits without major adjustments in our service, support or technology. A key part of the Check 21 law is eliminating the need to move physical paper checks and cash letters via courier, and greatly shortening the collection cycle. For the past several years, DCI has been implementing the latest in image processing technology at our processing centers, and several DCI customers already use our imaging services to reduce item processing costs and delays. DCI clears check-based transactions and foreign items by routing images of those items to the Endpoint Exchange Network, a nationwide, electronic infrastructure for moving and exchanging item images. Through Endpoint, check images are delivered directly to paying banks (via their processors) that are members of the Endpoint network, or to the Federal Reserve. Likewise, checks written by customers of DCI banks are captured by other financial institutions across the country and the check images transmitted to Endpoint Exchange for delivery to the DCI Image Processing Centers for archival and posting to the customers’ accounts. The original paper check is truncated or stored at the capture location for a period of time (not yet specified under Check 21 regulations) and then shredded.

Through DCI imaging and Endpoint Exchange, the process now takes place in a single business day as opposed to several days because the check is not physically transported through the Federal Reserve Bank system before it reaches the bank for payment. This also means the bank can react quickly to minimize loss. Plus, net settlement for both the outgoing image cash letter deposits and incoming image cash letter charges takes place daily, utilizing National Clearing House Association (NCHA) services, at approximately 2:00 PM Central Standard time.

DCI image processing under Check 21 has the potential to further reduce the cost of item processing through savings in

Float;
Transportation, courier costs;
Fewer item passes (labor, equipment, software click charges, supplies);
Significant improvement in collection time (same day, next day availability); and
Less manual and paper processing.

Other benefits include:

Increased efficiency resulting from a streamlined collection and return process
Lower risk of lost items and/or transit delays
Protection from fraud resulting from reduced handling and faster clearing times
Fully automated Day 2 processing enabled by image exception item processing
Compressed processing windows to enable later branch cutoff times
Online exception item review and decision-making without the handling of paper checks
Access to check images and statements, as well as electronic delivery of statements for enhanced customer convenience.

More About Endpoint Exchange

Endpoint Exchange is the country's first and only national check image exchange network helping U.S. financial institutions clear their check-based transactions by exchanging check images between institutions and the Federal Reserve. Endpoint Exchange capitalizes on existing imaging infrastructures and settlement relationships, with the goal of connecting every endpoint in the nation.

In the simplest terms, the Endpoint Exchange network replaces today's physical infrastructure for moving paper, with an electronic infrastructure for moving images. The network itself is a "cloud" of servers and telecommunications lines, with built-in redundancy, that manage the point-to-point transfer of images and data between Exchange members. The Endpoint Exchange seamlessly handles all routing of items to the appropriate institution for you.

DCI and the Endpoint National Check Image Exchange have specified NCHA (National Clearing House Association) for check image exchange, clearing, and settlement. At the end of each exchange day, net settlement totals are uploaded to each institution's Federal Reserve (FRB) Net Settlement account by the NCHA, and settlement occurs precisely at 2 pm Central time each day.

Endpoint Exchange enables member institutions to securely deliver images of checks and other private documents between financial institutions and their branches without a dedicated line, saving the expense of private lines and heavy hardware.

DCI and Endpoint deploy a highly secure connection to each one of our member institutions with around-the-clock security, hardware alarm monitoring and reporting.

Good Timing

The timing has never been better to take advantage of DCI image processing services. As you can see, DCI is already far ahead in check imaging and Check 21 capabilities. Our image processing solutions already enable the electronic exchange of images, including the import and export of images to support electronic clearing of checks along with faster processing, better customer service, and reduced operating costs.

By moving your bank onto DCI image processing services and joining the Endpoint Exchange network, you also benefit from having all images routed through one system, avoiding multiple adjustments and settlements. DCI is also investigating the possibilities of an "intra-clearing" process whereby all routing and transit items between DCI banks would be cleared within the DCI image processing system and would not need to be routed through the Endpoint Exchange or Federal Reserve Bank, which would be much less expensive and more efficient than other clearing methods.

Although other image delivery options are available, including the Federal Reserve Bank, our technology and agreement with Endpoint Exchange ensures that you receive the most proven, secure service available at the best cost.

As Check 21 and image processing becomes more familiar, DCI customers will also be able to implement scanning devices to capture MICR information and images of checks at the branch location, so the physical items never have to leave the branch. DCI has the capabilities in place to support such methods today, and is waiting for adequate branch capture equipment to be tested and released. If you are considering branch capture, we can advise you on the best methods and equipment to implement this process at your bank, but we recommend looking at a 2005 implementation date.

The regulations go into much greater detail, and we encourage you to fully investigate the government requirements of Check 21. But DCI customers can rest comfortably knowing that because we have already completed image processing standardizations and capabilities at all our locations, our customers are already in the best possible position to comply with Check 21 requirements and to reap its benefits, such as faster check clearing, decreased fraud, less paper, and increased security. DCI will also consult with you and help you complete any required paperwork for Federal, Endpoint Exchange, or NCHA participation as an imaged bank under Check 21.

For more information about DCI and how we can make Check 21work for you, contact us at (620) 694-6800 and visit us online at www.datacenterinc.com. We will work with your institution to leverage Check 21 and to capitalize on every available opportunity for greater efficiency, cost savings, and fraud protection.

About DCI

DCI develops and delivers advanced bank technology products and services to community banks of all sizes, nationwide. Backed by 40 years of experience, DCI solutions include in-house and outsourced core processing with integrated, executive management and reporting systems, online decisioning tools, Internet banking, item processing, imaging, document imaging, credit and exceptions management, deposit forms management, teller/branch automation, network solutions, complete ATM/debit card processing and more. www.datacenterinc.com.

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08/31/2004

Media Contact:

Mark Harris

Marketing Director

620.694.6771

620.694.1150 fax

www.datacenterinc.com