Presented by Jim Mills VP Business Development

1. Presented byJim MillsVP Business Development What Every Utility Should Know About Check 21 Utility Payment Conference

2. Check 21 • What is Check 21? • How does it work? • Check 21 versus ACH • Benefits of Check 21 • Getting started

3. Consumer Payment Survey Source: 2008 Survey of Consumer Payment Choices from the Federal Reserve Bank of Boston • Cash is the most widely used payment method for retail transactions • Checks are still the most widely used method for Bill Payments • Security and Ease of Use are the most common concerns of payment types • 91% of Consumers have a checking account

4. Distribution for Non-Cash Payments • Debit Card transactions now exceed Credit Cards • In 2006 30.6Billion checks were written & valued at $41.7 Trillion • Return Checks Represent .05% • 40% of Bank Clearings Occurred via Electronic Check

5. Aren’t Checks Going Away? “One-third of all non-cash US payments are made by paper checks.” “Checks are still the most popular form of payment used by consumers to pay bills” “Businesses pay 74% of their B2B payments by check.”

6. Why was Check 21 Created? • To Reduce Dependency on Physical Checks • Over 30 billion checks are written per year in US • September 11, 2001 • Planes were grounded • Checks could not clear • $47B in Fed holdover

7. The Check-21 Act’s Purpose “Check Clearing for the 21st Century Act” or “Check-21 Act” PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1177 Public Law 108–100 108th Congress “To facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the Nation’s payments system, and for other purposes.”

8. “Old” Paper Process Business receives checks Paper checks are delivered to the bank Collecting bank Courier to FED Paying bank Federal Reserve

9. Check 21 Process Check images transmitted to the bank Business scans incoming checks Images transmitted to FED Collecting bank Check images transmitted to bank Paying bank Substitute checks, if required Federal Reserve

10. Check 21 Has Exploded 58 Million Check Images per Day # Items in Millions Check Images 10 Source: Federal Reserve, Viewpointe, The Clearing House and local / regional exchanges

11. What is Check-21? • Check-21 law Governs use of “Substitute Checks” • The Check Clearing for the 21st Century Act (Check-21) was: • Introduced to Congress by Chairman Greenspan on December 21, 2001, and enacted on October 28, 2004 • Other names that are similar but confused with the Check-21 Act: • Image Cash Letter • X.937 (ANSI X.9.100-180) • Image Exchange (Image Cash Letter) • Electronic Check (e-Check) • Check Conversion • Check Image

12. Check-21 Enacted • Substitute Check standards for legal equivalence to the Original Check • Mandated that parties cannot refuse a substitute check but parties are not mandated to create a substitute check • All checks are eligible except foreign checks • Provided warranties and indemnifications • Expedited re-credit features (External Processing Codes in position 44) • 4 = substitute check • 5 = qualified return substitute check

13. Substitute Check (Image Replacement Document) This is a Legal Copy of your check, You can use it the same way you would use the original check. Contains an Image (Front/Back ) of Original Check “4” in position 44 Contains Original MICR Information 2D Barcode Optional Security Feature

14. Image Quality Assessment & Usability (IQUA)

17. ACH TRANSACTION TYPES • CCD - Cash Concentration and Distribution • PPD - Prearranged Payment and Deposit • ARC - Accounts Receivable Entry • POP - Point of Purchase • BOC - Back Office Conversion • RCK - Re-presented Check Entry • Tel - Telephone-Initiated Entry • Web - Internet-Initiated Entry

18. Check Conversion and Check-21 Comparison

19. Check Conversion and Check-21 Comparison

20. Pros’ and Con’s Check-21 vs. Paper Check Handling Faster, Cheaper, Better – No Brainer

21. Pros’ and Con’s Check-21 cont…

22. Pros’ and Con’s ACH Check Conversion

23. Eliminate daily trips to the bank Faster funds availability Later cutoff times Reduce errors and deposit prep time Identify fraud sooner Eliminate accounts at multiple banks by consolidating electronically Consolidate deposits from multiple locations Benefits of Check-21

24. Getting Started • Receive payments (2) Scan using Check 21 software & scanner (4) Update A/R (3) Send files to bank

25. Distributed Environment Deposits from multiple sites are consolidated at the Central Office Central Office A single ICL file is sent to the bank

26. THANK YOU

27. REFERENCES References • Argento, M. D., Stanton, J. R., Bachelder, E. L., & Stewart, D. C. (2007, December). The 2007 Federal Reserve Payment Study. Federal Reserve Bank of Boston. • Check Clearing for the 21st Century Act, Public Law 108-100 117 Stat. 1177 U.S.C. § H.R. 1474 (Oct 28, 2003). • The Continuous progress of Check-21-enabled Services. (2010, July). Retrieved from Federal Reserve Bank of Atlanta website: http://www.frbservices.org • ECCHO. (n.d.). ECCHO [Substitute Checks: Development of Processing and Quality Standards]. Retrieved August 10, 2010, from http://eccho.org/‌check21_resource.php • Foster, K., Meijer, E., Schuh, S., & Zabek, M. (2010, January). The 2008 Survey of Consumer Payment Choices. 2008-2010 Federal Reserve Bank of Boston. • Johnson, D. (2008, January). Check Conversion and Check-21 Comparison Grid. Ithaca NY: RP Solutions. • Rasche, C. (2010, May). First Federal weathers CHeck-21 ripple effect on check adjustments (Federal Reserve Bank of Atlanta, Ed.). Retrieved from http://www.frbservices.org/ • RP Solutions. (2009). ExpertRPS (Version 2.04) [Computer software]. Duplicate Check Detection Screenshot, IQUA Screenshot: RP Solutions. • Sabasteanski, C. (2004, March). Transformation in the Check Industry. FISC Solutions. • 2002 Electronic Payments Review and Buyers Guide: Vols. Pages 10-21. - Understanding the ACH Network: An ACH Primer. (2002). (Original work published 2002)