Banks turn to Web for check processing

CHICAGO - In a first for the banking industry, the Chicago Clearing House Association and its eight member banks this week will begin Web-based processing of check adjustments, departing from the paper-based process they've had for 135 years.

The clearinghouse is the forum for exchanging about $3 billion in depositor checks each day between Bank One, Bank of America, Harris Trust and Savings Bank and others operating in the Midwest. The banks tote tallied-up checks in bags to each other to settle accounts, and even with the new Web system that process will continue.

But here's where the Web system comes in: When problems crop up, such as a missing check or a paperwork error, an adjustment has to be made. The bank administrator currently addresses such problems by filling out a paper cash-letter adjustment form to start resolving the problems without delaying the check-settlement process.

"The number of adjustments floating around on any given day is phenomenal," says Paul O'Toole, vice president of the Chicago Clearing House Association. "Until now, the adjustment process has been a paper one. But we've developed an electronic means for capturing all the information for making this adjustment from bank to bank."

Banks active in the clearinghouse will now go to a private Web site owned by the Chicago Clearing House to fill out a Web form for the cash adjustment. This will be done in an encrypted session after logging on.

Because security is of paramount concern, the banks didn't want to rely on the repeated use of simple logons and passwords because they can be easily compromised.

Instead, each bank administrator authorized to issue Web-based electronic adjustments will have a hardware token for generating dynamic passwords. The palm-sized token - in this case, the Digipass 300 token from Vasco Data Security - will let each user generate a one-time variable password that will be recognized at the Web server as the proper authentication.

Vasco Digipass server software for recognizing and processing each one-time password is built directly into the Web application, developed with assistance from Chicago-based system integrator Rhema & Associates.

The clearinghouse plans to operate 22 hours per day, seven days per week, closing only from 3 p.m. to 5 p.m. Central Time to calculate the final settlement of the day and change the processing date.

There will be at least two settlements of swapped cash-letter adjustments each business day, with the final adjustment report transmitted to the Federal Reserve Bank in New York via the existing FedLine network. There, the cash sums will be immediately posted to the Federal Reserve accounts of the participants.

Chicago Clearing House's O'Toole says the electronic adjustments should reduce research and adjustment time, and provide online query capability.

While the Midwest banks in the organization will be the first to use it, O'Toole hopes the electronic system proves effective enough to be considered for nationwide use. That's why, optimistically, they are calling it the Bank Adjustment National Exchange.