Callaway Bank, located in central Missouri, made an aggressive decision in 2005 to adopt the Check 21 product suite through the Federal Reserve Bank of St. Louis, becoming one of the first financial institutions to adopt the full suite of electronic check-clearing services.

"We had choices and evaluated other clearing opportunities," says Kim Barnes, senior vice president at Callaway. "We chose the Fed because we knew they were in it for the long haul and would deliver."

The St. Louis Fed became the first Reserve Bank to offer the entire Check 21 product suite, taking a leadership position in adopting the Check 21 provisions after the Check Clearing for the 21st Century Act became law in 2003. "We were actually in the same boat as financial institutions throughout the country in regards to following and interpreting Check 21," says Angie Harter, manager in Financial Services Check Processing.

"However, the Fed has a responsibility to the payments system in that our mission is to provide and promote efficient, reliable and accessible payments services. So the Eighth District decided to take a leadership position in the implementation of Check 21 in the Fed System, being the first district to provide the new products and services while partnering with banks to show them how to most effectively use these innovations," says Harter.

Check 21 allows banks that process checks—including the Fed—to convert paper checks into electronic images, which can then be cleared electronically and presented as images or as a "substitute check"—a paper print-out of the image that has the same legal standing as the original check. During 2005, the St. Louis Fed purposely pursued testing and implementation of Check 21 products—first offering FedForward?, followed by FedReceipt?/FedReceipt Plus and then FedReturn?.

• FedForward is a mixed image cash letter deposited electronically to Fed banks to clear the items and it presents either substitute checks or an electronic file to the paying banks. This product offers later-than-paper deadlines that let depositors significantly improve availability on the dollars presented.
• FedReceipt is an electronic file containing the items drawn on your financial institutions that have been deposited in image cash letters with Fed banks or converted to images by the Reserve banks. This product is available to banks at no fee and qualifies institutions for a discount on forward collection items deposited with the Reserve banks.
• FedReturn is a mixed image cash letter deposited electronically to the Fed to return either substitute checks or an electronic file to the bank of first deposit. This product enhances inbound and outbound returns processing operations to reduce risk, while streamlining backroom operations to reduce operating cost and improve quality.

"Callaway had multiple choices when pursuing Check 21 service providers," Barnes says. "Although competitors looked good on paper, through further comparison the Federal Reserve was the better option. We decided that the Check 21 suite was the best way to go, and it has proven to be a good business decision." In addition to using the full Check 21 suite, Callaway Bank has also deployed enhanced internal processes such as Branch and Merchant Capture made possible by Check 21.

Vendor selection and coordination with Fed resources is vital to the success of this type of operational shift, explains Barnes, who gives credit to the Fed, particularly Andy Lueckenhoff, the primary Check 21 service coordinator for the Eighth District. "He worked with Callaway, vendors and operations to hammer out any issue until resolution was accomplished," she says.

For more information regarding the Check 21 products offered by the Federal Reserve, visit www.frbservices.org.