ECP: Getting the
Facts Straight

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If you recently have read a banking journal or attended a payments conference, it is evident one of the hottest issues in the industry today is electronic payments. More and more organizations are using electronic payments to improve their operations and enhance their customer service. The federal government is taking the lead in this migration to electronics, as evidenced by the mandate requiring companies to pay their federal taxes electronically (EFTPS) and the recent law requiring the Treasury to disburse almost all of their payments electronically by January 1999 (EFT 99).

Although the United States is increasing the use of electronic payments, we are still a long way from a paperless society. In fact, check volumes continue to grow. To help bridge this gap, financial institutions need to look for opportunities to eliminate paper from the payment process and take advantage of electronic payments. One way you can do this at your organization is to use electronic check presentment (ECP) services.

With ECP, a check processor­either the Federal Reserve Bank or a correspondent­captures data from the MICR line of each check, creates an electronic file that contains this information, and transmits the file to either the financial institution on which the checks are drawn or its data processor. The physical checks are either truncated or sent to the paying bank the same day or one to three days later.

ECP Reduces Fraud

The biggest advantage of obtaining MICR information electronically is you can post transactions to your customers' accounts earlier. This enables you to sooner identify fraudulent checks and items being drawn on accounts with nonsufficient funds. Earlier posting is also an important tool if you offer a PC banking product, because you can provide your customers information early in the morning.

With ECP, you also won't feel rushed to process the physical checks. You have the freedom to process them at your convenience-when you have the time and staff available. "The number one reason we use ECP is because it's reliable," says Lindsey White, Bank of Hayti, Mo. "When we get here in the morning, we know the information is out there waiting for us. ECP allows us to process checks at our schedule, without any pressure."

In addition, ECP stretches out the useful life of your check processing equipment, enabling you to spend less money and time on equipment maintenance. "We like ECP because we don't have to run items through our reader-sorter, which saves wear and tear on our machinery," says Reynie Rutledge, First Security Bank, Ark.

Myth vs. Fact

Through discussions with financial institutions throughout the District, we have heard various reasons why some bankers choose not to use ECP. To help you better understand the service, we want to address common points of confusion and dispel some myths that could be preventing you from using ECP.

Myth: To take advantage of ECP, my financial institution must purchase expensive software.

Fact: If you are using a current version of your in-house software, you usually do not have to purchase anything. You simply need to activate the feature on your software that enables you to receive ECP files. In addition, the Eighth District has lowered the prices of our MICR Presentment service by more than 50 percent in the last three years to make ECP more affordable.

Myth: I use a data processor to process checks, so I cannot take advantage of the benefits of ECP.

Fact: Not true! Even if you outsource your check processing, you can still benefit from ECP. Contact your data processor and find out if they are using ECP services. If not, explain to them the efficiencies of ECP and encourage them to try it. If your data processor is able to do business at a lower cost, they could pass some of these savings along to you.

Myth:I do not receive all of my checks from the Fed, so ECP is not a feasible payment option.

Fact: You don't have to receive all of your checks from one processor to take advantage of ECP. The Fed offers an array of ECP products, and other organizations offer comparable products as well. If you receive files from several processors, you can even ask them to combine your checks into one electronic file.

Myth: In the event my financial institution does not receive a cash letter after transactions have been posted, I will not be able to deliver customers' checks. This will be breaking the law.

Fact: There is no legal requirement to return checks to your customers unless you make a special agreement to do so. If necessary, you can always get a copy of a missing check from the bank of first deposit.

If you are interested in expanding the use of electronics at your financial institution, you can sample any of the Fed's ECP services for free! Simply contact your account executive.