Check21 The Check Truncation Act of the 21st Century

2. Check21 The Check Truncation Act of the 21st Century

3. Important Check21 Information for all Distributors who sell Business Checks

4. By now, you may have heard about the Check Clearing for the 21 Century Act, better known as Check21. It becomes effective October 28, 2004. This presentation is designed to help answer many of the questions you may have on how this new legislation will affect the negotiable documents you currently sell.

5. What is Check21? Check21 allows (but does not require) any financial institution in the check clearing chain to truncate any check and covert it to an electronic image. “Truncate a check” means to remove an original paper check from the check collection or return process and replace it with an electronic image.

6. Example of the process of converting an original check to an electronic image. Original Check Grayscale Image Areas of Interest Analysis Stored Binary Image

7. Check21 Why was Check21 Created? The goal of this legislation is to help improve the overall efficiency of our nations’ payment system. Check21 was designed to reduce the time, risks and costs associated with paper check processing. It was also designed to make it less susceptible to uncontrollable delays caused by weather, natural disasters or other disruptions in the national transportation system.

8. How will Check21 impact companies? Check processing will be faster (with the implementation of Check21) if a bank or financial institution sends an electronic image in place of the physical document. Funds may be removed from your account sooner than in today’s system; therefore, there may be less “float time.”

9. How could this change the way Checks are processed? Let’s examine the current payment processing system and also take a look at what the future may bring.

10. Check21 – Current Check Payment System Merchant - Lockbox Depository Bank Cash Letter and Physical Checks Paying Bank Statement Customer Collecting Bank

11. Check 21 –Future Payment System Merchant / Branch Truncation Transmit Electronic Cash Letter Transmit Image of Check Depository Bank / Reconverting Bank Electronic Statement Transmit Electronic cash letter Paying Bank Collecting Bank / Image Exchange

12. What happened on October 28, 2004? It all depends on the individual bank/financial institution: • If a bank in the check clearing chain agrees that they will accept an image, an image can be sent. • If the next party in the clearing chain doesn't agree to accept an image, a Substitute Check is created and processed.(See following slide on Substitute Checks)

13. What happened on October 28,th 2004? On a check that a customer writes the payer bank: • May receive the original check back. • May receive a copy of an image. • May receive a substitute check.

14. What is a Substitute Check? A substitute check is a paper reproduction of the image of the original check that: • Contains an image of the front and the back of the original check. • Bears a MICR number line containing all the bank account information from the original check. • Shows the routing and transit number of the truncating bank and the bank creating the substitute check.

15. Example of Substitute Check Front Back

16. What does it mean if your negotiable documents are “Check21 Compliant”? The main standard that is to referred to in the Check21 Legislation is the American National Standards Institute ANSI X9.7 voluntary standard for image readiness. This standard list ways that printers can design check that can be easily imaged.

17. What needs to be done to make a document Check21 Compliant? • Remove any interference in the Area’s of Interest (AOI) on a check. AOI-the area on a check that contain the critical information needed for imaging. These area’s include the Date, Payee, Legal Amount, Signature Lines and the MICR number area. • File Size below 90K. File size is the amount of electronic storage space it requires for a bank to store the image of the Original Check.

18. What can interfere with the Area’s of Interest (AOI) on a check? Any kind of clutter that remains after a check is scanned and converted to an image. This is measured in units of Pixels and Paxels. If a check is scanned and a portion of the printing in the Areas of Interest does not drop out it may cause a problem and interfere with the banks ability to pull information off the check.

19. Small Pixels that remain are no problem Single Paxels(Group of Pixels) are also no problem Paxel Strings cause a legibility problem What can interfere with the Area’s of Interest on a check? Note-strings of Paxels that remain after scanning also increase the file size of a document.

20. What are banks/financial institutions doing to enforce Check21 image standards? Since Image Ready ANSI X9.7 Standards are voluntary only 5% of all banks in the U.S. were expected to adopt this standard in 2004. Most banks are not enforcing Image Ready standards at this time. Some larger banks (example-Wells Fargo) may begin to suggest to their customers that they redesign their check to image ready standards.

21. Fact or Fiction Lets review common misinformation that you may have received from your bank/financial institution or other sources about Image Guidelines for Checks.

22. Fact or Fiction CHECK21 COMPLIANCE IS MANDATORY FICTION Check21 does not mandate the electronic processing of check images, it simply allows for it to happen. Most financial institutions did not have the equipment or the training to begin exchanging images starting October 28, 2004.

23. Fact or Fiction CHECK21 WILL REDUCE THE NEED FOR CHECKS. FICTION Check21 will not affect the need for an original check to be presented. It legislates what can happen to that check once it is presented for payment.

24. Fact or Fiction CERTAIN INK COLORS (dark blue, black, dark green and other dark colors) ARE NOT CHECK21 COMPLIANT FICTION As long as your check background drops out when imaged and complies with the ANSI X9.7 Standards it does not matter what color ink the check is printed in.

25. Fact or Fiction CHECKS MUST ONLY CONTAIN SECURITY FEATURES THAT SURVIVE WHEN SCANNED. FICTION Check Security features that survive when scanned such as Warning Borders, Chemical Reactive paper, and Back Printing are important. It is also important to incorporate hidden features built into the paper such as artificial and true watermarks as well as “VOID” (hidden word) technology. A combination of visible and hidden features are the best way to deter fraud.

26. Fact or Fiction YOUR CHECKS WILL NO LONGER BE ABLE TO USE A SECURITY “VOID” BACKGROUND? FICTION VOID backgrounds on your checks are very important to deter against fraudulent copying and scanning. Current hidden word or void technology is available that does not interfere with the Area’s of Interest on a check. Removing the VOID feature only makes it easier for a criminal to fraudulently copy/scan your checks.

27. How is Printegra Supporting distributors Check21 needs? • Upon request, we can test any repeat or new check order at NO CHARGE to verify if it is Check21 Compliant. Printegra has the equipment and procedures in place at all 9 nationwide locations. • If changes are needed we will provide you with recommendations on how to make the document Check21 Compliant. • Printegra will provide a proof on any repeat job that needs changes to become Check21 Compliant. • On jobs that need to be change we will charged a $20 Flat fee to make the composition/design changes. Printegra has installed ANSI Certified RDM Image Qualifiers at all locations.

28. Why doesn’t Printegra Automatically change all check orders to be Check21 Compliant? • Check21/ANSI X9.7 standards for Image Ready Documents are voluntary. Most banks are not requiring check image standards from their customers. • To make your customers checks compliant, it may require changes that might slightly change the look of the document. We would like you and your customer to approve these changes prior to manufacturing the order. Our goal as always it that we produce a product that will meet and exceed you and your customers requirements.

29. What common items on a check may need to be changed to become Check21 Compliant? • Check Backgrounds- Need to drop out when scanned by the bank. All ink colors are approved. • Areas’ of Interest on a check must be free from clutter. (No reversed headings) This includes the following area’s: • Legal Amount Field • Date Filed • Convenience Amount field • Signature Area • MICR Area- 5/8” Clear Band preferred.( ½” is acceptable) • Maximum File Size- the check when scanned must be below 90K.

30. How to request a order be made Check21 Compliant • Prominently mark your purchase order “Make Check21 Compliant”. You will be contacted if changes are required.

31. THANK YOU FOR YOUR BUSINESS AND FOR CHOOSING PRINTEGRA! Integrating Business Printing with Technology!