1. Preparing for Check-21 ICBA San Diego Fred Herr Senior Vice President Retail Payments Office Federal Reserve System

2. 2 Love & Hate

3. 3 Love

4. 4 Hate

5. 5 Entering a period of change Pain & Opportunity & Nostalgia

6. 6

7. 7 Check-21 & wishful thinking –Check-21 was written inside the beltway –Check-21 is supposed to: –make the world a better place –reduce check processing & transport cost –reduce check writing –Wishful thinking won’t change the fundamentals

8. 8 Check-21 & the bottom-line –Will Check-21: –reduce my operating costs? –reduce fees I pay? –reduce my collection float? –reduce my fraud losses? –retain good customers? –attract new customers? –generate new fees & Net- Interest-Margin? –make me more competitive?

9. 9 Number of non-cash retail payments in the US, 1978-2000 (billions) Check writing has started to decline

10. 10 Assume 5% annual decline in checks, 12 billion ACH/substitute check conversions in 2010 Hypothetical forecast of the future 2002 - 2010

11. 11 Federal Reserve product offerings –Proof & transit –Image cashletter collection services –Physical cashletter conversion services –Substitute check production & delivery –Physical transit cashletter collection services –Outbound returns –Image cashletter collection services –Derived returns from FedImage archive –Substitute check production & delivery –Physical return cashletter collection services

12. 12 Federal Reserve product offerings –On-us processing –Image cashletter presentment –MICR presentment with image-to-follow –FedImage truncation service –Physical delivery of originals & substitute checks –Inbound returns –Image cashletter presentment –Substitute check production –Physical delivery of originals & substitute checks