By Dennise Williams, Staff ReporterA STAGGERING 900,000 cheques per month with a value of $160 billion are cleared each month through the six commercial banks.
And as impressive as that number may sound, the fact that it only takes three days to clear those cheques when they are presented, is even more impressive. Many can remember the days when cheques took seven to 14 days to clear.
The commercial banks heard their clients' complaints and came together in a collaborative effort to do something about it. They formed the Automated Clearing House (ACH) in October of 2002. By 2003, $2 trillion passed through the system and for the first five months of this year, 4.5 million items have been processed at a value of $745 billion.
Edmundo Jenez, general manager of JETS. Limited, operator of the ACH system, explained to the Financial Gleaner how the service came about.
APPRECIATING THE ACH SYSTEM
"The ACH Project was born when Jamaica's six commercial banks Citibank, Bank of Nova Scotia, FirstCaribbean International Bank, First Global Bank, National Commercial Bank and RBTT Bank joined forces to create Automated Payments Limited (APL) with the goal of creating a shared electronic platform for processing electronic payments between the banks. With the cooperation and partnership of the Bank of Jamaica (BoJ) and JETS. Limited, along with the financial assistance of the USAID's New Economic Project a year-long project was commenced to build the Automated Clearing House at a cost of about J$30 million to construct."
A look at the old way of clearing cheques should give an appreciation of how revolutionary the ACH system is. Basically, the old system was based on duplication of work as the payee's and the payer's banks would have to process the cheque. States Mr. Jenez, "In the old system each bank had to process and sort the items it received each day. In some cases this was done manually, in other cases through cheque processing machines. The physical paper items were then batched together by the banks on which they were drawn and sent on to the Clearing House facility hosted by BoJ to trade the batches with the other clearing banks. This trade totals tally would also serve to produce the settlement figures that would be used to effect the movement of funds in the banks' Clearing Accounts at BoJ. At the drawing bank the incoming batches then had to be physically processed again."
Now, technology has cut out duplication and made the system more efficient. Through ACH, cheques are processed one time and electronic transactions are exchanged "via telecommunications systems and computers." Hence, the work load is cut in half and the processing time is shortened.
The system works like this:
An agreement by all the commercial banks and BoJ on a standard for encoding machine-readable cheques.
A new set of Clearing House rules that would govern the electronic processing of cheques.
The creation of an Electronic Clearing system that would take electronic files from each bank and performs the electronic exchange of the cheques between the banks and return to each bank the transactions that were drawn on their accounts.
The final electronic settlement with the BoJ to reflect the actual exchange of funds between the banks.
NOT SITTING ON LAURELS
With the ACH system, all the clearing banks agreed to use the MICR standard system for machine-readable cheques. The MICR format (Magnetic Ink Character Recognition) system allows for machines to quickly read and sort the cheques. The MICR line, a series of numbers seen at the bottom of each cheque, contains information about the bank, account number and other details that are used for machine processing. With this agreement all banks were then able to produce cheques of the required form for use by their customers to facilitate electronic processing.
Still, APL is not sitting on its laurels. APL is working to make the system even more efficient and allow payrolls to be done all by computer without the need for companies to cut cheques. Mr. Jenez reveals, "Over the next few years APL intends to improve on the ACH with the introduction of new services based on the ACH infrastructure. ACH Phase II is already under development to allow for the businesses to create electronic payments such as payrolls that can be completed by an employer from their PC sending wiring instructions to release funds to pay employee directly to their bank accounts."
