Positioning Your Business to Benefit from Emerging Technologies

Transcription

1 Treasury Management Electronic Check Processing: Positioning Your Business to Benefit from Emerging Technologies A Treasury Management White Paper By Keith Theisen, Senior Vice President - Treasury Management, Wells Fargo & Company

2 Table of Contents Overview of Electronic Check Processing... 1 Benefits of Electronic Check Processing...1 ACH Check Conversion echeck SEC Codes ARC Accounts Receivable Check POP Point of Purchase RCK Represented Check WEB and TEL... 2 Check Truncation... 2 The Changing Regulatory Environment... 2 Business Checks...3 Check Dollar Limit...3 Back-Office Conversion...3 What Electronic Check Processing Means To Your Business... 3 Taking Advantage of ACH Today...3 Optimized Decisioning...5 Combining Check Conversion with Different Deposit Solutions...5 BOC and Remote Deposit...6 Choosing the Right Solution... 6 Points to Consider...7 Wells Fargo Leads the Way... 8 Appendix 1: Processing Comparison...9

3 Executive Summary We ve been hearing a lot lately about new technologies in electronic check processing. This paper explores how these emerging technologies can become opportunities for your business. In electronic check processing, paper checks are transformed into electronic debits. This transformation can occur in two different ways: checks can either be converted into ACH (Automated Clearing House) debits, or truncated under Check 21 regulations. In the 2006 Check Conversion Survey* by Wells Fargo and Treasury and Risk magazine, 32% of respondents indicated that they are already using some kind of electronic processing solution, and another 29% plan to implement one over the next 18 months. Electronic check processing has the potential to bring you vast benefits such as earlier fraud detection, fewer bad checks, reduced processing costs, reduction in errors, and greater customer satisfaction through improvements in consumer privacy and security. Over the past few years, the government and the financial services industry have gained better understanding of how to increase efficiencies in check processing through electronic technologies. Some new rules taking effect in 2006 and 2007 will make the check conversion process significantly more efficient and cost-effective. Among these new rules is the Back Office Conversion (BOC) option. With BOC, businesses that accept checks at the point of sale or at staffed bill payment locations may convert eligible checks to ACH debits in the back office, without taking extra time to obtain a signature authorization or installing expensive hardware at every register. With the new BOC ruling and existing services, you can take advantage of ACH without changing the way you accept checks today. Especially when combined with remote deposit, BOC delivers enormous potential to lower costs, expedite access to funds, and improve collection on returned items. Businesses have many factors to consider when selecting an electronic processing solution, including underlying business processes, customer base, strategic objectives, risk factors, and operational systems. Wells Fargo can help you explore your options and make the right decision for your business. *See full survey results at

4 Overview of Electronic Check Processing In electronic check processing, paper checks are transformed into electronic debits. Whether checks are converted into ACH (Automated Clearing House) debits, or truncated under Check 21, electronic check processing delivers a host of benefits to businesses. Benefits of Electronic Check Processing Processing checks electronically is a classic example of a win-win situation. Electronic check processing saves money for the U.S. economy, consumers, the companies with which they do business, and the financial institutions they use. Earlier fraud detection. Accelerated processing times and faster notification of electronic returns help to identify potential fraud earlier than with paper checks, reducing losses for. companies and financial institutions. Fewer bad checks. Checks processed electronically generally clear faster than standard paper checks, accelerating the process for returned items. Faster return notification to the payee enables quicker handling and representment, resulting in higher rates of recovery. Electronic representment can recover money more quickly, often the same day. By comparison, the traditional method of collecting on bad checks calling debtors and asking them to send a new check in the mail can take much longer. Reduced processing costs. Electronic processing reduces time and resources needed to process payments, resulting in cost savings for the businesses. The Federal Reserve estimates that the U. S. economy saves $1.62 per ACH payment over the cost of processing a paper payment. Reduction in processing errors. When checks are scanned and processed electronically, the potential for human error (such as miskeying and misreading) is greatly reduced, compared to manual processing. Greater consumer security and privacy. Because of the Federal Reserve s Regulation E and the Operating Rules of NACHA (the National Automated Clearing House Association), consumers have greater account protection when their checks are converted than when a paper check stays a check. Reg E gives consumers 60 days from the date their account statement is sent to them to dispute ACH transactions posted to their accounts. And with electronic check processing, fewer people see and handle the paper check, meaning that the customer s name, address, telephone number, and other personal information are subject to far less risk than is the case with a paper check that moves physically through the banking system. Consumers have more financial privacy with electronic check processing. Ultimately, this improved security and privacy for the consumer translates to greater customer satisfaction with businesses that use electronic check processing solutions--and reduced potential liability for the business. ACH Check Conversion In ACH check conversion, a paper check is provided at some point before that ACH debit is created. The check is used only as a source of information; the check itself is not the method of payment. The paper check is captured through an electronic system that identifies the check number, the checking account number, and the number that identifies the financial institution on which it is drawn. This information is then used to make a one-time electronic payment from the account an electronic funds transfer (EFT). This payment occurs electronically through the Automated Clearing House the same reliable network used by hundreds of thousands of companies for direct deposit of payroll, and by the Federal government for benefit payments such as Social Security. The ACH system is a closed, private network that is not accessible to the general public and is not part of the Internet. Encryption, message authentication codes, and other security procedures protect the information. In more than 30 years of existence, the ACH network has proven to be very safe. In 2005, more than 14 billion payments were processed through the ACH network. In the 2006 Check Conversion Survey, respondents named the top three benefits of electronic check processing as returned item improvements, better information reporting, and improved funds availability and businesses are increasingly choosing ACH conversion for just these reasons. Businesses use different methods for check conversion, depending on how checks are received and processed. Not all checks, however, can currently be converted to electronic payments. The Federal Reserve and NACHA oversee and regulate this process, determining what types of checks are eligible for conversion and how the conversion must be handled. In 2005, according to NACHA, more than 2.3 billion checks were converted for ACH processing an increase of 84% in just one year, from 1.25 billion in echeck SEC Codes Five ACH Network Standard Entry Class (SEC) Codes are used for electronic check services: ARC, POP, RCK,TEL, and WEB. ARC Accounts Receivable Check 26% of survey respondents use or plan to use an Accounts. Receivable Check (ARC) ACH solution. Check conversion rules for ARC payments were ratified in March ARC is a one-time ACH debit entry transaction drawn on an account, which can be initiated by a company for payments that are made by mailing a check to the remittance processor or other company location or by placing the check in a drop-box. It applies to consumer and some business checks that are sent directly as remittance payments. A non-recurring debit, based on the amount of the original check and its routing information, is then generated by the remittance processor and sent to the financial institution for clearing..

5 The benefits of ARC have quickly made it a popular choice, as demonstrated by a 45.22% jump in ARC transactions to more than 491 million from the first quarter of 2005 to the first quarter of 2006, according to NACHA. POP Point of Purchase Check conversion at the point of sale has been available in the marketplace since September 2000, when NACHA s point-ofpurchase (POP) rules went into effect. POP conversion was designed to allow consumers to continue to enjoy the benefits of writing checks, while offering both operational and financial advantages for merchants and banks. A check is scanned at the point of sale and is returned to the check writer, who must sign a receipt authorizing the conversion. While it was a giant step forward in payment processing at the time, this system still has some disadvantages, the most significant of which are the need for costly scanning equipment at every point of sale and increased tender time at the register due to the requirement to obtain written authorization from customers. As a result, adoption of POP conversion has been relatively slow, compared to other echeck options. Only 6% of survey respondents indicated that they currently use or plan to use a POP solution. RCK Represented Check RCK is used to describe a paper returned check converted to ACH for re-presentment. Checks that are returned NSF can be redeposited as ACH debits. Evidence shows that faster action on returned items increases the potential for recovering funds. Check conversion delivers enormous benefits from the expedited processing of returned items: an additional redeposit attempt, lower returned item costs, and a higher chance of collection. RCK transactions grew only modestly in 2005 by just over 8%. WEB and TEL Web-or telephone-initiated payments can also be processed as electronic debits, usually ACH debits. NACHA classifies a payment initiated via Internet or telephone as an electronic check, even though the debit is not initiated by a source document (a paper check). WEB transactions increased by nearly 44% to over 322 million in the last year, while TEL volume grew more slowly at a rate of nearly 31% to 71.4 transactions. Check Truncation In 2000 the Federal Reserve Board staff began investigating a concept to promote check truncation and electronic check presentment. That concept evolved into the Check Clearing for the 21st Century Act (Check 21). The idea was to enable a bank to substitute a machine-readable copy of a check (a substitute check or IRD (Image Replace Document)) for the original check for forward collection or return. Substitute checks that meet the requirements of the Act are the legal and practical equivalent of the original check. A check can be digitally transmitted to the paying bank and printed to be cleared, or image exchange can be performed if both institutions are set up for it. Check 21 went into effect in October As a result of Check 21, the national check processing system has become more reliable. Fewer checks are physically transported, and many of those are transported across shorter distances,. resulting in fewer delays due to weather or other events, and. more efficient clearing. For businesses, Check 21 can mean faster access to funds. It also means faster collection on checks drawn on. accounts with insufficient funds, due to quicker fraud detection and faster returned item notification. Since it was first permitted in 2004, image exchange has gained momentum across the financial industry. Natural evolution seems to be leading financial institutions to use image exchange to clear items more efficiently: first moving paper checks then imaging checks then transmitting them and creating IRDs then exchanging the images directly then ultimately delivering images on demand Banks are currently working to exchange image cash letters,. replacing paper cash letters. Many organizations today can do. image capture, but few are able to receive images yet. Until sufficient mass is attained on the receiving side, many organizations are imaging on the capture side, then transmitting the images and creating Image Replacement Documents (IRDs). The time period for technology development and implementation for capture and receive, and the ability to exchange between financial institutions, has been longer than originally anticipated. The Changing Regulatory Environment Over the past few years, the government and NACHA have gained better understanding of how to increase efficiencies in check processing through electronic technologies. Of respondents to the 2006 Check Conversion Survey, 29% indicated that they planned to implement an electronic processing solution sometime over the next 18 months. NACHA approved three key new rules in 2006 that are going to make the check conversion process significantly more efficient and cost-effective for financial institutions and their customers.

6 Business Checks Until recently, business checks of any type were ineligible for ACH conversion. Typically, business checks have been identified by determining that the check s MICR line contains an auxiliary onus field or by assessing the physical size of a check: generally six inches for checks drawn on consumer accounts and nine inches for those drawn on business accounts. As many small businesses use six-inch check stock, however, many checks written by businesses are being inadvertently converted because distinguishing business checks from consumer checks has proven to be difficult. Beginning September 15, 2006, under the new NACHA rule,. business checks up to $25,000 that do not contain an auxiliary on-us field in the MICR are eligible for ACH check conversion. Companies that don t want their checks converted need only include the aux-on-us in their MICR line. Check Dollar Limit Beginning September 15, 2006, checks for more than $25,000 are not eligible for ACH conversion. The impact of this ruling, however, is likely to be negligible, as a relatively small number of checks are of such great value. The average value of a check was $1,065 in 2003, and only 3.4% of checks are written for amounts greater than $5,000. (Sources: Trends in the Use of Payment Instruments in the United States, Federal Reserve Board, 2005; Report on the Retail Payments Research Project, sponsored by the Federal Reserve System, 2002.) Back-Office Conversion Businesses that accept checks at the point of sale or at staffed bill payment locations will be able to convert eligible checks to ACH debits under the new back-office conversion entry class code, or BOC, which will become effective March 16, Businesses will no longer be required to obtain a signature. authorization, or to have expensive hardware installed at every register as required under current POP rules. Companies will only need to disclose to customers that their checks will be converted to electronic payments by means of a notice at the register and on a document that customers take with them: for example, on the back of a standard receipt. To help businesses take advantage of the increased efficiency enabled by these new rules, financial institutions and third-party processors are developing back-office conversion solutions. BOC is designed to allow businesses, government agencies, and other entities more flexibility in when and how to convert paper checks that are received at the point of sale. BOC will deliver the cost and risk reduction benefits of electronic check conversion without impacting tender time or requiring hardware investments at every point of sale. BOC promises to add to the benefits that the Check 21 legislation already provides for small to large businesses of all kinds: grocery store chains, health care firms, property management companies, small banks, and many other types of companies that accept checks in person. BOC will increase the percentage of checks that are converted, because the notification and authorization are easier to implement- -and solutions are generally less expensive to install than POP solutions for in-person payments. In fact, 53% of survey respondents say they will prefer to capture their checks in the back office, and 92% of respondents already have Internet capability in those locations, Financial institutions and processors that operate coastto-coast can help firms to use BOC and/or integrate with other echeck types to process checks electronically at any time, from any location. What Electronic Check Processing Means To Your Business It s simple: no matter how you are currently accepting check. payments, you can now reap the benefits of electronic check. processing. Taking Advantage of ACH Today With the new BOC ruling and existing services, you can take advantage of ACH without changing the way you accept checks today. In other words, you don t need to retrain staff or put. expensive equipment at every check register. You can continue. to accept in-person checks the same way you do today, but you have the added advantage of being able to convert them later.. For mailed checks, you can leverage ARC or other methods. Whether you elect to use a back-office conversion solution, or an ARC solution, payments received at the point of sale and payments received through the mail can be handled using essentially the same four-step process: 1...customer notification (via signage, their mailed statements,. or other means) that checks will be converted 2. check acceptance at point of sale and by mail 3...check conversion (in the back office or by your financial. institution/processor) 4...check destruction (by you or your financial institution/processor)

7 The chart below may help you as you consider what new options make sense for your business. Current Depository Method ACH Check Conversion Options Cash Vault BOC. Some financial institutions cash vaults are equipped to image and convert eligible check deposits, allowing businesses to take advantage of both ACH check conversion and Check 21. Remote Deposit BOC, ARC, or POP. Businesses can scan checks in their back offices or at the point of sale for both in-person and mailed check payments. They can then send the electronic data and/or image files to their financial institution or processor. Branch/ATM BOC. Some financial institutions branch and ATM locations are equipped to image and convert eligible check deposits. Lockbox ARC. Businesses using this deposit method can convert their eligible mailed checks to ACH. Company s Point of Sale BOC or POP. Businesses who have already implemented POP conversion with scanners at the point of sale can continue to use this method. Another option is to use a BOC solution, to increase efficiency at checkout and reduce processing and hardware costs; often, existing POP equipment can be repurposed to support a BOC solution.

8 Optimized Decisioning Optimized decisioning is a rapidly emerging technology and. business solution that allows a larger percentage of items to be converted to ACH when it makes financial sense to do so helping organizations control risk and maximize profitability. With optimized decisioning, your financial institution or processor can parse and process all eligible items via ACH, while processing the remaining items via the rules under Check 21 legislation. An optimized decisioning engine enables your financial institution to deliver the best clearing method for a given payment at a given time. converted into ACH transactions and funds will be available next day. Financial institutions can automatically sort ACHeligible from ineligible items. Ineligible items are settled under Check 21, and funds will generally be available two days from deposit. Large or mid-size grocery chains, discount and convenience stores, gas stations, and casinos that deposit checks per day with significant amounts of cash may already use cash vault services to deposit checks and cash through a single channel. Check Conversion Workflow Cash Vault ATM Branch & ATM ACH Conversion Returns Lockbox Smart Decision SM Engine Settlement Image Exchange Consolidated Information and Image Solutions Express Check POS* Substitute Check *Available in late 2007 Desktop Deposit Combining Check Conversion with Different Deposit Solutions Organizations of every size and type can successfully and. affordably implement a check conversion solution that combines BOC and different deposit solutions to extend the efficiencies BOC offers. Large businesses such as department stores that deposit approximately 200 checks a day with a small amount of cash can employ a single image capture device with Internet connectivity in a back office. Cashiers collect checks as they normally would and deliver them to the back office at the end of the day. There is no slow-down at the checkout line or extra training needed for cashiers. Checks can be scanned and sent to the bank via the Internet. All eligible checks will be automatically Soon, cash vaults may be equipped with image scanning devices to process check deposits using BOC to convert check items to ACH on the same day, so firms will have access to check funds as quickly as they do cash. These types of firms may also choose to image and deposit checks from their places of business using remote deposit solutions. Property management companies, large and mid-size insurance companies, and municipalities that deposit up to 1,200 checks per day received both in person and through U. S. Mail can still benefit from a check conversion solution. In-person checks can now be converted in the back office, and many financial institutions have already enabled their nationwide lockbox sites to image checks and process either via ARC or Check

9 21 transactions. New technologies and intelligent banking systems such as optimized decisioning allow lockbox customers to efficiently route and convert all eligible checks into ACH transactions for next-day availability. Healthcare organizations, universities, and charitable organizations that receive up to 200 checks per day paid in person with little or no cash can employ a single scanner in the office along with an Internet connection to send deposits to the bank. Employees have the option to scan checks as they accept them, or wait until the end of the day to scan all of the day s checks and convert them into ACH transactions. Small businesses, or businesses with locations in remote areas, that currently go to bank branches to make in-person deposits with a teller or at an ATM, can install a scanner to image and send deposits to the bank via the Internet. And though the convenience factor would be removed from the equation firms in this category still have the option to continue to make in-person deposits and still receive many of the benefits that BOC has to offer. Soon, some financial institutions branch and ATM locations will be equipped to image and convert eligible check deposits to ACH transactions. BOC and Remote Deposit The flexibility and convenience of remote deposit already makes it a great solution, but when combined with BOC it delivers enormous potential to lower costs, expedite access to funds, and improve collection on returned items. It also offers the opportunity to consolidate depository business to a single provider. In the 2006 Check Conversion Survey, 78% of respondents indicated that they have multiple locations making deposits. The potential benefits of being able to implement both remote deposit and back-office conversion extend well beyond the obvious conveniences and reductions in fees. Anytime/anywhere conversion. Financial institutions. that operate coast-to-coast can help firms process checks. electronically anytime, anywhere. Whether checks are received at the point of sale, cash vault, lockbox, a branch location, or an ATM, financial institutions can help businesses to easily. convert their checks into ACH transactions and receive. comprehensive depository information reporting. Cost savings. For both businesses and financial institutions, savings in processing costs are significant compared to manual forms of payment. The total cost of processing each paper check (including costs incurred by depository institutions, payees, and processors) ranges from $2.78 to $3.09 per check, according to a recent U. S. Federal Reserve study. Compare these amounts to an average cost of $1.15 to $1.47 for each electronic transaction processed through ACH. Clearly, when multiplied by the number of paper checks presented today at the point of sale, the potential savings reaches into the billions of dollars. Reduced tender time. Businesses will be able to make deposits from a back-office location instead of the current onerous process at every point of sale: scanning each check, obtaining a signature authorization, voiding the check, and returning it to the customer. This approach saves employee time and keeps checkout lines moving. Faster access to more funds. With BOC, more checks will be converted to ACH, and ACH items are generally processed within a day, meaning that firms receive either same-day or next-day access to a greater percentage of their check funds. Single channel for all check deposits. Firms no longer have to separate ineligible from eligible checks now that institutions are offering optimized decisioning. Improved collection. Because more checks can be converted to ACH via BOC, and ACH debits clear faster than paper checks, firms will generally see an improved rate of collection. No it resources required. You don t need scanners at every. register, complex and expensive hardware, or in-house computer expertise. All you need to start converting your checks is a single scanner and an Internet connection in your back office. Or you can outsource the conversion process to a financial services provider. Consolidation of banking relationships. When firms process a larger number of items electronically, the need to rely on multiple banks to serve specific geographic locations becomes a thing of the past. Banking decisions no longer need to be made based on what bank branch is closest to your place of business. You can choose to consolidate depository business to a single provider, saving time and money on account management and maintenance fees. Comprehensive reporting. Financial institutions should offer comprehensive, integrated reporting, regardless of how checks were processed or cleared. A deposit report can include detailed information on each ACH and Check 21 item not just totals for ACH and Check 21. Similarly, returned item reports can show a consolidated view of both check and ACH returns. Choosing the Right Solution Businesses have many factors to consider when selecting an. electronic processing solution, including underlying business processes, customer base, strategic objectives, risk factors, and operational systems. Respondents to the 2006 Check Conversion Survey indicated their top three considerations as scanner/capture equipment costs, funds availability, and technology requirements. So you will want to choose a financial institution that offers a range of processing options, rather than one that takes a one size fits all approach.

10 Points to Consider Do you need to continue to deposit the way you do today (vault, branch, ATM) due to existing service contracts or for other reasons? For example, you may have an armored courier, an existing lockbox provider for payments received by mail, or other service providers that require you keep the deposit process the same. Or you may take in a large percentage of cash. If your company can t change, you might consider a BOC or ARC solution using your financial institution s traditional deposit channels, such as cash vault, branch, ATM, or lockbox. Continue what you do today, and let your bank or third-party processor handle the conversion for you. Note that your company would still need to disclose to your customer that check conversion might occur, per the NACHA rules. If you company can change the way it makes deposits, you can also consider emerging technologies such as remote deposit or image cash letter. What resource impacts do you now experience with depositing paper checks? With remote deposit, instead of taking your checks to the branch each day, you scan them at your own stores, locations, or remittance processing site, then transmit the digital data directly to the bank and the payments system for clearing. This process eliminates the need to physically transport checks to the local branch or lockbox site for deposit. Moreover, because you avoid the need to pre-encode checks, manual processing errors can be reduced or eliminated. Are you concerned about costs? BOC allows you to avoid or reduce certain costs that you would face with point-of-purchase conversion, including the need to get consumer authorization for each conversion, to equip each point of sale with check scanning hardware, and to train cashiers. If you choose to couple BOC with remote deposit, only one set of equipment is needed in the back office, and you don t necessarily have to purchase it; affordable leases are often available. If you choose to couple BOC with other paper deposit solutions, such as Cash Vault, you don t even need a back office scanner. The BOC rules require only customer notification, not any customer action, and no special procedures are needed on the part of the cashier. Does remote deposit capture deliver the benefits to make a business case for changing your deposit methods? Consider several aspects here:...can you replace current time-consuming practices like encoding checks and sending people to the bank to make deposits every day? If you don t have significant cash needs, perhaps those trips won t be needed....would an extended deposit cutoff time for your checks be of benefit? If you currently deposit to a vault, branch, or ATM, or if your armored courier picks up in the morning or early afternoon, a remote deposit solution will most likely extend your deposit window. As a result, more payments may be able to be processed on the same day when you use remote deposit....do you have remote locations where getting to your branch, ATM, or cash vault is a problem?...would you be able to reduce courier fees or other costs. associated with transporting the checks to a branch. (e.g., worker s compensation, lost productivity)? What do these decisions mean for your cash deposits? You ll have several options:...you can keep your process the same for cash, and change it for checks (with a combined remote deposit/boc solution, for example)....you can keep your process exactly the same for cash and checks (using Cash Vault and BOC, for example)....you can choose to make changes in some places within your company and not in others....if you have high cash and low check volume at a given site, you can choose a deposit model that gives you the greatest efficiency on cash, such as a coast-to-coast vault provider. Ask if your provider can support new processes for your checks as well such as Vault/BOC, remote deposit only, or remote deposit/boc)....if you have a low cash and high check volume at a given site, you can select a deposit model that gives you greater efficiency on checks, such as remote deposit only, remote deposit with ARC or BOC, or a lockbox processing solution coupled with ARC....Consider any negative impacts of splitting your cash from your checks deposits, or whether you already do that today. Does your current institution offer you choices? Ask these questions:...does your provider offer remote deposit?...does your provider offer electronic check conversion? If so, how?...can it support ARC for mailed payments through a remote deposit solution?...is your provider offering POP solutions? What does that mean for your point of sale today, and do you need to change anything?...is your provider going to be ready for BOC in 2007? If so, how?...does your provider require you to move to remote deposit, in order to get the benefits of ACH check conversion? Does it offer BOC or ARC using deposit solutions such as lockbox, vault, ATM, or branch?...if you can t use remote deposit for any reason, does your provider have a solution that provides lockbox and cash vault sites from coast to coast, or will you be required to have multiple relationships in order to get an electronic check processing solution?...can your provider perform optimized decisioning on your behalf, or will you have to determine which way to clear your checks based on the type of check?

11 Wells Fargo Leads the Way Wells Fargo offers a variety of solutions designed to support you in moving toward the electronic depository solution that works best for your business needs. Wells Fargo will be ready in March 2007 to support back-office conversion in all deposit channels. Our customers can decide how they want to deposit checks, and Wells Fargo will deliver a consistent payment processing model through all the different depository options. Make a deposit using Desktop Deposit, our industryleading proprietary remote capture solution, or through any of our extended network of cash vaults, branches, or ATMs, and Wells Fargo will convert your eligible checks to ACH debits. Wells Fargo leads the way in electronic payment processing:...wells Fargo executive Steve M. Ellis, 2006 and 2007 chairman of NACHA, is helping to bring Wells Fargo s more than 150 years of banking leadership to bear on the evolution of electronic payments....our powerful optimized decisioning engine incorporates years of ACH processing expertise, enabling the most efficient clearing of check payments and lowering costs for our customers....one deposit credit and consolidated reporting--regardless of how checks are processed--give customers the integrated information delivery their business operations need. A few highlights of recent Wells Fargo recognition include:...named 2005 Best Corporate Internet Bank in U.S. by Global Finance Magazine....Wells Fargo Bank, N.A. has the highest possible credit rating, Aaa, from Moody s Investors Service and the highest credit rating given to a U.S. bank, AA+, from Standard & Poor s Ratings Services....Named 2006 CIO 100 Bold winner for innovation, for the Desktop Deposit product by CIO Magazine....Wells Fargo is already an industry leader in remote deposit with our proprietary Desktop Deposit and Wells Fargo Electronic Deposit SM services. To take advantage of electronic check processing, including back office conversion, without making changes to your deposit methods, contact your Wells Fargo relationship team, or call

12 Appendix 1: Processing Comparison Acronym ARC POP BOC Check 21 Definition Accounts Receivable Entry Point of Purchase Back Office. Conversion Check Clearing for the 21st Century Act Standard Entry Class Code on ACH item ARC POP BOC N/A Use Checks received at lockbox or unattended drop box Checks written in person to make a purchase Checks written in person to make a purchase All US dollar checks written on a US bank Uniform Commercial Code (UCC) No No No Yes Regulation E Yes Yes Yes No NACHA Rules Yes Yes Yes No Dollar Amount Limit $25,000 $25,000 $25,000 None Types of accounts eligible Consumer, Business with no aux-on-us Consumer, Business with no aux-on-us Consumer, Business with no aux-on-us Consumer and. Commercial Notice or Authorization Prior notice via mailed notice or drop box sign Authorization (Signature) Notice at point-of-sale and takeaway copy of notice N/A Opt-Out Requirement Yes - recurring Yes each occurrence Yes each occurrence N/A Original Check. Retention Requirements Checks must be destroyed within 14 calendar days Returned to consumer at point of sale No check destruction requirement Not specified by. Act Retention Requirements for Copy of Check Retain Copy of. Authorization or Notice 2 years N/A 2 years 7 years or as specified by state N/A 2 years N/A N/A Return Right for. Unauthorized. Transactions 60 days from. settlement date 60 days from. settlement date 60 days from. settlement date N/A Check Serial Number. included on. Transaction # of Total. Presentments Yes Yes Yes Yes Wells Fargo Bank N.A. All rights reserved. Member FDIC. TM