October 26, 2004

Check 21 - "What's a check?"

An article from Seattle Post-Intelligencer (??) has a nice view on the changing scene in Bank retail payment systems. These institutional pets have been changing slowly around the world based on marginal improvements and the occasional invention like the ATM. Then, in the early 90s, the Internet surfaced, and a chap called David Chaum said he could do it better on the net. No more sleepy changes within the club, as we saw a rush into half baked solutions like SET, SSL and a string of 3-party closed systems.

Check 21 (century 21 - get it?) is the US effort modernise american retail payments. A decade late(r), the Economist calls the effort half-hearted. One question confronting the Americans with their new Check 21 initiative is whether the consumer gets his "check" back. Here's how Bill Virgin describes it:

Check 21, the new federal law on processing paper payments, takes effect Thursday, making this an appropriate moment to ask this generation-defining question:

Do you get your checks back?

If you are of a certain age, your response is more likely to be: "You bet I do. Having the checks is how I reconcile my statement and my checkbook every month, and in the event of a dispute, having the original check is crucial in proving that I made a payment and the check cleared."

Should your birthdays number a few less than those of the previous group, your response would be more along the lines of: "Oh, I used to, but it wasn't worth the bother and expense; I never used them, the information I need is on the statement and if I need a copy I can always order one."

Still younger, and the response would sound like: "You can get your checks back?"

And the youngest generational cohort, maybe one that hasn't reached banking age yet, might answer: "What's a check?"

To the rest of the world, this may need some explanation: American banking accounts deliver the stamped and settled cheques back in the mail, with the statement. It's a fat envelope, sometimes. So every month, you can use the original cheque to reconcile the statement.

Of course, the rest of world probably did that once, too, but it was before my memory. Which would put it before the 70s I'd guess.

Getting back to David Chaum and his invention of digital cash, with his system there are no cheques. Only coins, which once settled were of no value. Not only was he replacing the paper, he was replacing the whole settlement concept.

It doesn't have to be all that drastic. Ricardo uses cheques as a form, as well as coins. In the cheque form, there is a digitally signed instruction to move value. In the coin form, it is a withdrawn token of value, perhaps using a blinding formula, perhaps not. When the settlement is done, the server returns a receipt, which again is signed. Digitally, you can have your cake and eat it too, then.

Which leaves one question: do you get your cheques back?

Of course you do. We wouldn't have it any other way, as otherwise you don't know if the Issuer is telling the truth. The cheque, or the coins, are part of the signed receipt, providing an end-to-end confirmation in one packet.

"Customer who want the checks back want the piece of paper, clearing and routing stamps and all, in hand. If there's a dispute about whether a payment was made, or a check cleared, they've got the paper to prove it. And they don't have to pay a fee to retrieve that piece of paper."
Posted by iang at October 26, 2004 09:25 AM | TrackBack