Huntington Bank hired Unisys to evaluate their readiness for Check 21, which will allow banks to process checks electronically starting in October. The diagnostic found over 100 areas where Huntington was not fully prepared for the changes beyond basic compliance. Implementing the optional technologies enabled by Check 21, like electronic check images, will be more complex and costly than anticipated. It will require upgrades to systems for returns, fraud detection, and archives to store electronic images. While Check 21 may eventually reduce processing costs, banks will face significant short-term expenses to overhaul operations and ensure security of electronic check data.

1. Perks Beyond Compliance Will Cost $$$
Huntington finds there's more than meets the eye
By John Adams
Check 21's long-term impact beyond initial compliance may include boosting adoption of a
number of innovations, such as transferring check images over the Internet. But with just a
couple of months remaining until the bill goes into effect on October 28, banks such as
Huntington are finding these optional yet vital tech plays are more complex than originally
thought-and more expensive.
At Huntington Bank, a Unisys diagnostic unearthed questions regarding returns, fraud
detection, signature verification and other areas. "We were surprised by the number of things
that we found," says Ted Kute, svp and manager of operation services for Huntington. "The
value is finding all of these things early, rather than stumbling across them."
Huntington, which has a longstanding relationship with Unisys, in January decided to do a
Check 21 exam offered by the tech company. Compliance with the letter of the law wasn't
the issue as much as whether the bank was fully prepared to embrace all of the potential
benefits of imaging. "We were really trying to make sure that we were looking at the whole
thing, to be able to understand all of the changes that were going to be required," Kute says.
Security is a perfect example of Check 21's impact that's not apparent on the surface. "The
security group is going crazy because they won't have the physical paper with the
fingerprints, or the writing sample," he says. "They have concerns about what somebody
could do with PhotoShop, and what sorts of answers the industry is going to come up with if
people are digitally signing these images. How would they know if they'd been tampered
with?"
Banking pundits have long contended that the legislation promises to save lots of money for
banks over the long haul, since it opens up the possibility of labor-saving automation in
check processing. But in the short-term, it could also cost a bundle. "As this evolves, there
are going to be benefits, but there are also reengineering costs and training costs," says
Gary Cawthorne, managing partner at Unisys. The tech firm has done Check 21
consultations with four of the 10 largest banks and eight smaller ones. The firm has found
more than 100 areas in which banks are not prepared for full implementation beyond basic
compliance with the letter of the law. "All the legislation says is that you have to receive
replacement documents in place of paper," he says. "It's a simple requirement. If that's all
you do, you don't get the full benefits of truncation."
Much of the oversight ironically stems from the sheer simplicity of the legislation. Check 21
actually requires very little, only that banks allow for equivalents that can stand in for actual
checks. Nothing in the bill says anything about electronic imaging, or making images
available on-line, or anything specific about any channel. But it's in those channels where the
greatest benefits can be derived, along with the corresponding expense.
A white paper from Capco, a consulting firm, says Check 21 will cost as much as $10 billion
during the next three to five years, as banks work to manage implementation and
redundancy costs associated with reducing legacy investments in check processing. But it
doesn't stop there. Capco's research on Check 21 says the bill poses "significant" revenue

2. risks by migrating check processing to ACH or digital checks at lower fees, and in the
reduction in check float fees-a long-relied upon revenue stream.
"Our hypothesis is that the issue is being looked at in a way that's disconnected from
business issues," says Adam Dener, a partner at Capco, who says some institutions may
turn to outsourcing their check processing to circumvent Check 21 headaches. "What's going
to happen with the costs associated with that check?" he says. "What's going to happen to
the float? Is spending money on 100 different changes a worthwhile endeavor?"
Cawthorne says much of the focus has been on purchasing technology to capture check
images, but there's also other downstream technology that needs to be upgraded-or
replaced altogether-for banks to reap the full benefits of check imaging. "You now have to
have an archive to put images in," he says, adding that an enterprise-wide reengineering of a
business process dependent on touching physical checks hasn't been fully considered by
many banks.
Unisys's 3D Visible Enterprise software models how changes in a single or group of
procedures affect an entire business. It compares the bank's current state to that after a
major change or upgrade, and the results help determine what a bank needs to change to
fully adapt. Unisys has traditionally used the product to model branch infrastructure for retail
banks, but with Check 21 drawing near, it's also using it to map how the overhaul of check
processing will impact departments across an entire bank. "In today's environment, if all of
your checks are coming into a processing center, you could [use the 3D strategy to] figure
out what's going to happen now that you're going to use imaging to convert the checks at the
center," Cawthorne says.