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CYBER CHECKS PILOT


Efforts to move checks over the Internet could begin as early as this month, according to bankers associated with a group that is focused on the development of new technologies to support financial services. And if the so-called electronic check concept proves workable, it could help guarantee the banking industry a place on the Internet.


Plans call for Bank of Boston and Chemical Bank to demonstrate a prototype electronic check sometime within the next two months as part of a project being undertaken by the Financial Services Technology Consortium (FSTC). According to Frank Jaffe, senior systems consultant at Bank of Boston and project manager for the FSTC electronic check project, if the demonstration proves to be a sound one, a prototype could be available to pilot by the second half of 1996.


Members of the electronic check project team, in addition to Bank of Boston and Chemical, include: Bank of America, Bank of Montreal, Bank One, Citibank and Wells Fargo Bank. The National Automated Clearing House Association (NACHA), the Electronic Check Clearing House Organization (ECCHO), and the University of Southern California Information Sciences Institute are participating as advisors to the project.


The Electronic check envisioned by FTSC differs from electronic check presentment (ECP) in that initiation of the transaction occurs electronically on the check-writer's computer screen. ECP, on the other hand, converts a check that has been initiated on paper to an electronic file at some point after it enters the interbank clearing system.


Consumers or businesses will be able to initiate electronic checks to pay for goods and services purchased over the Internet. The upcoming demonstration will involve payments for items purchased over the World Wide Web. FTSC's electronic check is one of several payment alternatives under development to support buying and selling over the Internet. But FSTC is the only program backed by a group of major banks. "Banks have an enormous investment in processing paper checks," notes Jaffe.


In the upcoming test, Bank of Boston and Chemical will use the Automated Clearing House (ACH) to clear the electronic checks that are used to pay for purchased goods. A special transaction format which was designed to transmit truncated checks (the socalled TRX format) will be used to move the electronic checks' data through the ACH.


The ACH has drawbacks, however, involving delayed settlement and an inability to pre-authorize transactions. ACH supporters note that ACH offers a same-day settlement window. And pre-authorization, through the ACH, emulates the check system, and banks don't guarantee the authenticity of check before the items enter the clearing system. A seller who wants a guarantee that a payment is good can opt for other payment mechanisms.


There will be a place for various bank-controlled payment mechanisms to support buying and selling over the Internet. "We want to use existing clearing mechanisms as much as possible to move money through the banking system," says Jaffe.


David Walker, Managing Principal, J.D. Carreker and Associates, the Dallas consulting firm that helped launch ECCHO, isn't convinced. "If you're going for wholesale replacement of the 60 billion-plus checks that are written each year, you need something different. I think there's a need for a transaction set consumers think is convenient and that will work with the existing legal infrastructure. Or, we may have to create a different payment mechanism."


We will be providing follow-up information on checks on the Internet, so keep watching!

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