March, 2003

Check 21 Bill H.R. 1474 Introduced in the HOUSE: Congressional Report 3/28.

The new Check 21 bill was introduced to the House of Representatives of the 108^th Congress last week by Melisa Hart and Harold Ford and is scheduled for its first hearing on April 8^th. A large majority of representatives are reported to be in favor of the bill and it is expected that it will be sent to the floor for a vote in the near future. A similar bill is being worked on for the Senate, but no details or sponsors were available for comment yet.

Electronic checks in Alaska 2/2 Alaska Journal of Commerce

At least 20 small retailers & franchisees in Alaska will no longer take your checks. Rather, they will accept the check, swipe it through a small machine, & promptly return the document with a credit-card style receipt for you to sign. Does that mean you have a financial problem? Not necessarily, said Hope Frazier, Cornerstone Credit Services LLC. To Frazier, it means you’ve written 1 of 200 million electronic checks that could be processed in the coming year. Electronic check readers scan a consumer’s paper check, convert the information to a digital form, process that data against a system database, snap an image of the document itself, & return the voided-out paper to the writer. Buying a reader usually costs around $1,500 & they operate with a $0.25 to $0.35 per-check processing charge, depending on the company’s size & volume of check it accepts. It’s a form of payment that is growing in popularity among buyers & sellers alike. In 2001, US consumers processed more than 200 million electronic checks, according to NACHA. Of those checks 88.7 million came from POS sales. In Alaska, the number of businesses that use the technology is small but growing, said Greg Gillquist, Cornerstone Credit. His company is the only firm in the state that sells & manages electronic-check equipment, & - although the company’s e-check client base is only about 24 companies in Alaska - he is confident that the technology will play a pivotal role in future commerce. “We’re becoming a paperless society. We believe in the need to keep up on the latest & greatest in check debt recovery, & this is it.” E-checks began their journey from concept to cashier over 20 years ago, said Nancy Grant, NACHA. But, she noted, the payment system became a reality in 1999, when the technology was developed, the regulations were drafted, & the pilot scanners were ready to be launched. Grant said the equipment increases the convenience & usability of check -writing for both consumers & retailers. They cut down on the possibility that a check may be fraudulently used, reduce the number of returned checks that a retailer will receive, & expedite management. “It’s a marriage of how customers wanted to pay & merchants’ needs to lower their costs. It reduces the time needed to get reimbursed for the check, it reduces the amount of time that merchants spend processing checks.” Kathi Cinkowsky, McDonald’s of Fairbanks & North Pole, is one of the state’s e-check compatible merchants. “I love it, I think it’s wonderful. It makes the process a lot easier.” Cinkowsky, who launched the equipment in 3/02, said it helped streamline the administrative process for her staff by reducing the paperwork & filing that must be done every night. There is less to do in terms of clearing, endorsing & processing the checks before they are sent to the banks. She added the number of bad checks written to the restaurant has been slashed. “We went from getting back 4 or 5 bounced checks per week to 4 or 5 per month.” While the new check readers were embraced by her staff, Cinkowsky said there was some confusion about the process among the clients. With time & exposure, however, that has essentially gone away. “Occasionally, someone will still be baffled by what is going on, but most understand the process by now.” Adding the check reader, which plugs into a telephone line, increased the number of payment options available to Cinkowsky’s clients, since she purchased terminals that are compatible to credit & debit cards, as well. Frazier noted that the credit machines & e- check processors can run off of the same line, since they operate using a similar dial-up method. Increased convenience is a minor benefit compared to the increased security that electronically-processed checks provide to the user, Grant said. “There is much more security for the client though electronic checks then through regular checks. On average, 12 people handle a paper check during its processing, & they all have access to the information on that check. Customers recognize that, once an electronic check is handed back, nobody else is going to see it.” NACHA established regulations to provide a client with increased protection, under the new equipment. A client claim of fraudulence must be immediately rectified & any pending investigation has to be done within a set time. Grant said electronic - check regulations are designed by a federal agency to protect consumers, whereas paper check laws are governed by the state & are designed to facilitate commerce. Gillquist said, in regard to the new technology & the rights that go along with it, one of the most important things both consumers & retailers can be is educated. Restaurants in the state have placed small, tent-shaped placards on their tables, explaining what will happen if a check is written, & Cornerstone Credit offers training & customer support for companies that are interested in the payment method. Despite the advantages of the system, Gillquist said many corporations are still hesitant about changing to electronically read checks. “One of our biggest frustrations is that people don’t take advantage of this technology. The technology makes the store, & the buyers, accountable.”

CrossCheck checks online 2/25 CCW

CrossCheck, the nation’s largest private payment-guarantee company, has announced rapid growth of its ChecksByNet & CheckNow services. The total dollar amount of checks processed through CheckNow in 2002 increased 497.6% from 2001, & the total dollar amount of checks processed through ChecksByNet increased 164.8%. Both services are based on patent-pending technology. CrossCheck was the first company to provide an online check payment settlement mechanism. ChecksByNet is a unique program that an online consumer can use to write a check over the Internet for products or services by filling in their check information on the simple, secure web page. CheckNow works in a similar way, but the consumer gives the merchant their check information via phone or fax & the merchant submits the information to CrossCheck through its secure web page. With both programs, once the check information is submitted, a check may be printed out seconds later on the computer printer designated by the merchant & then deposited in the bank for payment. Check payment & guarantee systems such as ChecksByNet & CheckNow may become important for businesses as e-commerce increases, especially as many consumers do not have credit cards or access to credit. comScore Networks has estimated online consumer sales for 2002 (excluding auctions) to have hit $74 billion, a 39% increase over 2001, despite the turbulent state of the economy & the worst retail holiday season in years. According to comScore, there were sharp increases in the number of new online buyers & there was greater spending among buyers with more online shopping experience. The majority of online consumers said that they believe the Internet is the easiest or most convenient way to shop, it saves time, & that they use the Internet as a tool to find the best deals. 38% of Internet users expressed that they are still uncomfortable providing their credit card information over the Internet. FTC reported 162,000 identity theft complaints in 2002, 42% of the complaints involved credit cards, 19% involved the Internet. Founded in 1983, CrossCheck provides payment guarantee solutions to 79,000 retail & dealer outlets nationwide & handled $10.2 billion in guaranteed transactions in 2002. Its goal for 20 has been to provide merchant customers with increased profitability while reducing financial risk. CrossCheck is known for industry firsts & cutting-edge-technology in the POS financial services market.

e-ValuCheck checks online 2/26 Businesswire

e-Commerce Cubed (EC3), an online payment solutions provider, announced that Fortune Hi-Tech Marketing, a network marketing company, has purchased & implemented its e-ValuCheck product to offer its customers the option & convenience of accepting checks via the Internet. Fortune’s representatives provide high-tech products to end-users, including Internet access, long distance & cellular telephone service, satellite, paging & voice messaging services. e-ValuCheck is used to accept sign-up fees from sales representatives; Fortune has never accepted credit cards for payment. In fact, more than 90% of its representatives use checks & sign up online. “We offer entrepreneurs the opportunity to build a profitable business on a full or part-time basis without the traditional start-up hassles,” said Paul Orberson, Fortune. “Our sales force keeps consumers connected with cutting-edge digital communications services; & e-ValuCheck provides us the convenience to stay connected with them.” e-ValuCheck enables merchants to accept paper checks online through a process that differs from most online check payment systems. Rather than using an ACH transaction, e-ValuCheck uses existing check clearing & collection methods housed within their bank’s operations center. This payment method allows consumers’ checks & merchant’s deposit slips to be printed & processed in the bank’s data center for immediate deposit into the merchant’s account. “e-ValuCheck’s speed & reliability, EC3 has been responsive to our needs & has tailored the system to best serve our customers. 100 representatives sign up via our Web site everyday. As part of the official face of our organization, we couldn’t afford the costly crashes that our previous payments system suffered.” “Such a majority of our reps wanted to pay by check that we decided to change financial institutions in order to use this product. The Internet is quickly becoming the standard for conducting fast & accurate business, & e-ValuCheck helped us harness those efficiencies to serve our customers better.” Chet Andrews, EC3, said “e-ValuCheck capitalizes on consumers’ preference for writing checks while using the Internet to greatly increase efficiency of processing & accessibility. e-ValuCheck allows merchants to accept paper checks for payment, without ever seeing, handling or depositing a single check. We use the Internet to facilitate the transmission of checks on behalf of the consumer & the merchant. The merchant reduces the processing costs related to paper checks while increasing potential market share & while allowing the consumer to make payment via their preferred payment method, the paper check.” e-ValuCheck was created for online & electronic bill payment & enables secure transactions between online merchants & customers without the use of credit cards. e-ValuCheck will require no additional handling, balancing, or encoding prior to submission into the reader/sorter equipment. e-ValuCheck prints checks & registers, transmits data, encrypts files, archives databases & creates reports to make paper check payment easier for consumers, merchants & banks.

Mitek FraudProtect 2/26 Businesswire

Mitek Systems, a developer of automated document processing technology, announced the ß release of FraudProtect, a next generation, image-based fraud detection platform. The ABA estimates that criminals in the US attempted $4 billion of check fraud in 2001, & that bank losses from these attempts approached $700 million. FraudProtect provides a powerful new software platform to help banks detect fraudulent checks as they are presented, helping to reduce potential bank losses from check fraud. The fraud detection products available in the market are dedicated to transaction-based fraud such as kiting, duplicate check numbers & various other unusual patterns of account related activity. FraudProtect performs image-based fraud detection. This is the first product that utilizes comprehensive image-based features to detect fraud. It can reveal a variety of obvious & subtle differences between images of genuine checks & images of checks that have undergone fraudulent alterations. The product provides several mechanisms for detecting such alterations. These mechanisms include automatic analysis of a check’s layout, logos, textual differences & signatures. The current API for FraudProtect is implemented as an ActiveX control. Features of FraudProtect include: Check layout comparison can detect variations between an image of a genuine check & images of checks originated from the same account. Pictorial logo comparison can detect subtle differences in specific sections of checks & other documents. The textual comparison feature can detect alterations in payer & financial institution portions of checks. The product is capable of automatic detection of discrepancies between the MICR & the information printed in the body of the check, such as check serial number. The signature comparison feature automatically compares signatures on checks. The first product Mitek will derive from this technology platform is the FraudProtect Toolkit Edition. The Toolkit Edition includes the image analysis engine, a programmable interface based on ActiveX, API documentation, a Studio configuration & control applet, & a set of sample programs. Mitek is offering interested parties reference design assistance for the integration of FraudProtect into check & payment processing systems. Other products & services Mitek plans to provide as part of the FraudProtect product line include: FraudProtect, CheckQuest Edition; FraudProtect, POD Edition; FraudProtect, Image Exchange Edition; FraudProtect, POD Integration Services. Mitek FraudProtect customers may enroll in a service that will provide an updated version of the FraudProtect software to address the changing conditions & patterns of fraudulent activities. Customers that enroll in this service will receive a customized version of the product to meet specific needs & requirements.

Northern Trust check conversion service 2/28 PRNewswire

Northern Trust, the 8^th largest ACH service provider with over 139 million payments processed on an annual basis, announced today the introduction of new electronic check conversion services as part of an integrated process designed to take advantage of recent NACHA rule changes. These changes give a billing organization the ability to more effectively convert eligible accounts receivable checks into ACH debits which helps reduce high return rates & reduce client transaction costs. “Our integrated ACH check conversion product capabilities coupled with our consultative approach & industry leading service model differentiates Northern Trust,” said Rich Domalewski, Northern. “Northern’s clients in the electronic payments business demand solutions that are effective in meeting quality standards for clients & yet can quickly integrate industry changing rules that improve the process.” Northern Trust’s new ACH check conversion service offers all of the benefits inherent to electronic check conversion such as reduced transaction costs, better availability, & improved return item processing. Northern offers an integrated technology solution that reduces customer service issues & reconcilement problems by leveraging new software with unmatched parsing & decisioning capability. “It’s not just about processing the transaction,” said Jan Salzman, Northern. “It’s about knowing the effectiveness of our services & its impact on our clients’ day-to-day business.” “Northern Trust’s reputation in the electronic payments business is attributable to a dedicated focus on client service supported by leading edge technology,” said Ron Raspberry, Northern.

Wausau image exchange 2/17 Wausau

Wausau Financial Systems has pilot program available to Optima3 ImageRPS remittance users designed to increase the efficiency of electronic check conversion. The pilot program will allow remittance processors to implement Image Replacement Document & Check Image Exchange capabilities either for the electronic presentment of all check volume or for only the check volume that cannot be processed under the new ARC check conversion rules governed by NACHA. Pilot participation will be made available to ImageRPS remittance processors starting in IQ 2003. While conversion of checks using ARC has grown substantially over the last couple of years, not all items can be processed through ARC nor are all customers comfortable with converting their checks using ARC. This pilot will allow remittance customers to electronically send all non-ARC items using image exchange or Image Replacement. “Documents, further increasing the efficiencies of processing checks,” commented Mike Tallitsch, Product Line Manager of Remittance Solutions at WFS. “This new technology will position remittance processors to take advantage of the Checks21 legislative changes expected in 2003.” Zions NetDeposit Image Exchange & IRD network will be used to facilitate the electronic exchange for pilot participants. In 11/02, WFS, EDS, Zions & WesPay announced a forward presentment image exchange pilot scheduled to begin in IQ 2003. As part of this remittance processing pilot program, users will be able to electronically exchange check images with banks participating in the forward presentment pilot. As the 2^nd phase of the pilot, WFS announced its intention to use NetDeposit’s capabilities to clear & print demand drafts created if an ARC item is returned. NetDeposit will clear demand drafts by printing them at print centers located throughout the US. This capability will expedite the payments of the demand drafts & reduce the costs of transporting demand drafts to the paying banks.