Understanding Check Truncation and Check Conversion

by Elizabeth Murrow   Check electronification is the process wherein a paper check is converted to an electronic check. Paper checks are electronically imaged and truncated at a bank which is then exchanged using networks that mimic the usual paper-based check clearing process. It can be categorized in two ways: check truncation and check conversion. What is the difference between these two categories? According to the Check Clearing for the 21st Century Act (Check 21), banks are required to convert the check data electronically, safekeep them, return checks at the request of the payor bank, and provide information on checks when requested. In simple terms, it is simply the conversion of a check to an electronic debit or image of the check which serves as the official record. A substitute check or an electronic image of the original paper check replaces the original check in the collection or return process. Substitute checks are mainly a paper reproduction of an original paper check. On the other hand, check conversion is the process where a check is used as the source document to get the necessary data to initiate an electronic debit to the checking account. Check truncation also allows the check information to be presented electronically. It then becomes the legal equivalent of the original check. Check truncation is governed by check law, Uniform Commercial Code and Regulation CC while check conversion is governed by electronic banking law (Regulation E). It also helps reduce overall payment system operational costs and cut check fraud. An electronic check conversion uses your check to gather information such as your check and account number that identifies your bank. They are processed faster than a normal check and includes different consumer rights when it comes to echeck conversion transactions. Checks may converted electronically through paying bills by mail or making a purchase in a store. This process helps save money be reducing paper and time needed to process checks while at the same time, processing secure information. Certainly, checks will still be used for a long period of time. And because of check conversion to ACH debits or check truncation, both processes are eliminating the paper processing that has started check clearing.   (Elizabeth Murrow currently works for a payment processing solution company. Being in the business for quite a long time now, she has been continuously sharing her knowledge through various lectures and blogging, including http://allaboutecheck.wordpress.com. Born and raised in California, Elizabeth now lives in Australia with her husband and two kids. She likes to travel during her free time.)

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