thought it was time to give you an update on the current status of the check, so it's important to talk first about Check 21. Many of you may have been wondering what the legislation is and what its implications are for our respective businesses. The Check Truncation Act of the 21st Century, or Check 21, is the congressional bill recently signed into law that will allow banks to transmit check images instead of the actual paper documents.

This seemingly small distinction could have major significance. Every night while most of us sleep, the skies are filled with freight carrier airplanes, flying across the country delivering packages to regional centers. From these points, trucks pick up the packages and drop them at their assigned destinations.

There are also airplanes up there carrying nothing but paper checks. Every night, regional bank centers send and receive bags full of checks that individuals and organizations have written, mailed, shipped or dropped off at various businesses.

The checks must get from those businesses to the maker's bank destinations (we call them Originating Depository Financial Institutions, or ODFIs) to process for payment.

As you probably recall, all forms of non-military flight were grounded throughout the United States immediately following Sept. 11, 2001. That resulted in millions of checks sitting in planes held up on airport tarmacs and not allowed to take off (or land) for three full days. Since banks could not process those checks, close to a billion dollars in float and lost interest income were lost.

Even though imaging technology has advanced remarkably, it took an act of Congress to get the banks to move forward on this issue. All Check 21 really does is allow the banks to store the original item for another bank and send an image electronically. It is nothing more than prodding banks into the electronic age.

This may not mean much to most of us, although many have argued that this creates more awareness and possible growth in ACH transactions, including point-of-sale check conversion (POP). It's important to note that Check 21 does not require banks to convert their paper checks into electronic images, but instead encourages and allows them to do so; when you think about how fast banks really move, this in itself is a big step.

Also, the requirements for storing checks are fairly specific and can be cumbersome. Security is naturally one of the biggest sticking points with banks, so you can imagine how strict the procedures are concerning check handling and storage.

Check 21 does not take effect until next year, and even though some banks have opted to gear up prior to that, it will take some time for us to see much movement. Many banks will choose to not participate in the foreseeable future due to many factors; check imaging equipment can be quite expensive, so cost will be a consideration, for example. The implementation of Check 21 will represent some cost savings for the banks that may or may not trickle down to us.

Check 21 could present opportunities for MLSs as well. Since banks are now looking at automation, increased opportunities for revenue sources will become available for value-added services in the ACH arena.

As we look at the various electronic check processes, including check conversion, it is important to note that Internet-based transactions are the fastest growing category, followed by the larger volume transactions group with Electronic Check Conversion (POP). Internet transactions may include recurring payments and, of course, Electronic Bill Presentment Processing (EBPP) carried out primarily on the Internet.

In total, these transactions represent $52.67 billion in value, which is only 1.02% of the total ACH volume, which is only 4% of the total current transaction volume in the United States.

There are two additional check initiatives worth mentioning here. The first one is SafeCHECK, offered through SVPCo, the consortium of eleven large banks; SafeCHECK is designed to help process checks electronically and reduce risk for the retailer by giving them real-time access to the consumer's DDA account. After several years in development, SVPCo rolled out SafeCHECK with a 45% participation rate.

This meant a large percentage of all the personal checking accounts in this country was going to be accessed electronically by SafeCHECK in checking balances and capturing funds. However, Visa acquired SafeCHECK several months ago, and severed most user agreements; Visa intends to integrate the SafeCHECK backbone within its POS Check Service initiative.

Visa's POS Check Service uses the Visa network (representing roughly 3.5 million retailers) and is similar to SafeCHECK's product in that it gives retailers access to the consumer DDA account. Visa has officially rolled out POS Check, but at the moment has a relatively small merchant participation rate, a handful of merchant acquirers and only a few third-party processors taking part in the project.

I believe this model is far less palatable, because aggressive pricing and participation are issues that still need to be resolved. But transactions are accruing; Secure Payment Systems has opted to become part of the project and we plan on rolling it out early next year.

Being able to process all payments electronically is still a long way off, in my humble opinion. While we embrace technology in many other areas, we need to consider issues that may impede the growth of electronic processing.

Americans do not always accept change enthusiastically. We also believe that we are entitled to that great institution known as 'float,' which many regard to be an inherent right earned at birth. We seem to be very attached to the concept, and will probably not be letting go of it anytime soon. Even a check card has virtually the same level of float attached to it.

Can I prove this? Last year, 49 billion checks were processed, according to the Federal Reserve Bank, with 10 to 12 billion checks processed at the point-of-sale. Approximately 12 billion credit card transactions in total were also processed. Roughly 69% of all payments made in 2002 were processed as credit or check-that adds up to float, float, float!

The paper check is still a force to be reckoned with, despite the growth of electronic check processing. Some forecasters predict that check conversion will grow at a rate of 100 to 200% per quarter. Now that Wal-Mart has decided to begin processing checks electronically at all of its locations, many believe that growth rate will be even higher in the near future. It is my contention that banks will have to get on board or be left behind, given that the tracks only run in one direction.

Steve Eazell, a 15-year veteran of the payment industry, is the Director, National Sales and Marketing for San Diego-based Secure Payment Systems (SPS), a national provider of value-added services, including electronic check and stored-value gift card services. For more about SPS, visit www.securepaymentsystems.com or e-mail seazell@securepaymentsystems.com