Image Quality Emerging as Check-21's Critical Issue

Today, Oct 2004

FSTC Image Quality and Usability Assurance Initiative Advances

The Financial Services Technology Consortium (FSTC) has been actively involved in the issue of image quality as it relates to Check 21, In July, the Consortium announced that the first phase of its "Image Quality and Usability Assurance" initiative was complete, and that Phase II was in development.

According to FSTC's Web site, the Image Quality and Usability Assurance initiative "has the long-term goal of defining an operational framework for the industry that ensures any check image, regardless of its capture point, meets the industry's minimum requirements."

Having accomplished the goals of Phase I to "quantify the potential problem in dollar and customer-impact terms, and to develop a common set of definitions and requirements that would serve as the foundation for future work," FSTC is moving on to the second phase of its initiative.

Phase II will seek to develop, test, and publish the technology and business specifications that together can be implemented by financial institutions and technology vendors to minimize risk, maximize cost savings and ensure strong adoption of image exchange.

The Problem

With the Check 21 Act now law, and timetables set for implementation in late 2004, the U.S. banking industry is now quickly approaching adoption of check image exchange and check image capture centralized as well as merchant, teller, and ATM locations. With financial institutions ultimately liable for defective or 'untransactable' check images, financial institutions must ensure that image quality assessment and assurance capabilities are effective, or face significant financial, operational, and reputation risks.

Given that physical checks will be either destroyed or returned to customers at the conclusion of a payment transaction, rather than processed through the payment system, it is this groups' position that every check image capture point, whether centralized high-speed capture, or distributed low and medium-speed capture, must have a robust, standardized acceptance/rejection engine capable of determining whether a check image is reasonably acceptable for downstream recognition and processing, and ultimate payment. However, there are no current industrylevel definitions of what makes an image acceptable for processing and payment, and how the quality of an image can be ensured at a variety of capture points.

If current image quality capabilities are not adequate, especially for distributed capture points outside of the direct control of banks, financial institutions may face unprecedented levels of financial exposure. As financial institutions themselves will be liable for these faulty check images, the need to address this challenge should resonate clearly with our industry. A rough estimate of the financial exposure to U.S. financial institutions approaches $26 billion per year.

In addition to the financial risk of bad images, the efficiency gains of image exchange are also threatened by inadequate image quality and usability assurance at point of capture. If institutions rely on returning items to a bank of first deposit for subsequent return processing, the amount of rework and lost efficiency gains also present a potential cost that diminishes the benefits of image exchange.

While technologies do exist to assess image quality at the point of capture, and messaging standards do exist to transmit this information between parties in the processing lifecycle (e.g. SDTU ANSI X9.37), consistent industry metrics for image quality and usability, and usage specifications for the x9.37 standard need to be developed and adopted to ensure robust and efficient image exchange. Without this additional level of definition and associated feasibility testing, these challenges threaten to undermine the opportunity that Check 21 presents.

The Phase II initiative will define the quantitative thresholds for key image metrics that collectively translate into a baseline of acceptable image quality and usability to maximize efficiencies, cost savings, and ensure strong adoption of image exchange. The project will undertake a robust, "real-world" analysis and test to provide actionable specifications and direction to the industry, allowing financial institutions, technology vendors, standards organizations, and other key partners to collectively implement baseline image quality and usability through industry collaboration under the FSTC umbrella.

Source: www.fstc.org