Description of Web-Based Check Processing

Introduction

This is a prototype of a check processing system designed to facilitate the clearing process that needs to occur when a check is deposited in a bank different than the one that it is drawn on. In our approach, the check is envisaged to be scanned at the bank where it was deposited, and then its image will be sent electronically using the Internet to the bank of origin. Without sending the original paper copy of the check, the system is able to perform the normal clearing process in less that one working day, saving huge time and money compared to the current procedure. In addition, an "express" option has been included in our approach in order to process checks virtually in real time, for those cases in which the client is willing to pay an extra fee to obtain instantaneous access to the funds. This fee will be share by all the banks involved in the process.

Check Processing

Step 1: Check Submission

The clearing process begins at the bank where the check is deposited. This bank must submit the check to the system using a secure Internet connection. In our prototype, checks are submitted filling a form that includes the MICR code (Branch ID, account number and check number), the amount of the check, the image of the check and the option for express service. The image and the MICR code are read by check scanners (see a review of scanners in http://profit.mit.edu/InternationalChecks/hardware/), and the amount of the check can be read automatically using specialized character recognition software (see Automated Reading project in http://profit.mit.edu/winbank.htm, and a review of commercial software in http://profit.mit.edu/InternationalChecks/software.html). Therefore in a real application, the form will not be required while submitting the check to the automated system.

Submitted checks are assigned a unique traking code, and then stored in the central database of the system. If the check has been designated to use the express procedure, the bank of origin will be informed immediately using AOL Instant Messager (http://www.aim.com/) or similar technology. Otherwise the system will wait for the branches to connect.

Step 2: Clearing a Check

All branches that use the system are expected to connect to the system every day in order to process the checks deposited at other branches. For this step, the bank only needs to use a standard web browser that may be run in parallel to other applications that are specific to that bank. When the designated person connects to the system, he/she will be shown the list of checks waiting for clearance. After watching the image of the check and checking the signature and account balance according to the branches rules, the check will be cleared or denied. If the check is accepted, the system generates a "clear code" that is used to perform instantaneous wire transaction without further checking, since the code is electronically signed by the central system and serves as a warranty that the transaction has already been approved.

Step 3: Obtaining the Clear Code

A branch can connect any time to the system so see the status of the checks. This list contains the checks that have been submitted and can be in three status: waiting, cleared or denied. If the check was cleared, then the "clear code" is shown and the branch can proceed forward with the instantaneous wire transfer.

Step 4: Wire Transfer

The bank of deposit requests a wire transfer to the bank of origin, which will accept that request immediately since it is accompanied by the clear code. Note that the bank that cleared the check did not make the transfer of money at the time of clearing the check, because its obligation is only to validate the checks in less than one day. If the check is cleared, the bank deducts the amount from its customer’s account, and then waits for the other bank to claim the money. It is the responsibility of the bank of deposit to check the system and to request the money from the bank that cleared the check.