Wednesday, August 12, 2009

The next step for the USAA iPhone check application

My previous post on the USAA iPhone application was extremely popular. I suddenly had much more visits to my blogpage, which implied that I have a lot of US readers (thank you), or this check imaging system is really groundbreaking...

I have not used a check (nor seen one) for years (I do all of my payments electronically), so I had to do some thinking to get my head around what the application actually do. My recollection is that a check is a paper instruction to my bank to pay money into the bank account of the beneficiary. Typically, I would give the check to the beneficiary that passes it on to his/her bank and then this bank passes it on to my bank. Ultimately the check lands up at my bank where the money is duly subtracted from my account and paid over to another bank. It seems in the US it is now possible to pass an image of the check from bank to bank, rather than the physical check itself. And this is possible because we now have technology that is powerful enough to replicate the physical process exactly.

Surely, one should use technology to improve, rather than replicate the manual process? The obvious (and simple) application would be for me (rather than getting the beneficiary and his/her bank to do it), to pass the image of my own check to my own bank, instructing them to pay the money over to the beneficiary. As an even more bold step, we could remove the image and just ask my bank (electronically), using my iPhone to subtract the money and pay the money into the account of the beneficiary.

This would have been real innovation in my book.


Erik said...

It seems as tho you are talking here about a direct transfer of funds to the beneficiary from your bank to the beneficiary bank.

Arguably, an advantages of a paper check is that the paper can be negotiated between individuals subsequent to the original transaction that caused the check to be issued.

For example, the beneficiary could sign the check over to a third party, and cut-out the operation of his bank in the transfer of the paper.

In your proposal, it seems that the beneficiary would have to issue what amounts to a second check to pass the funds on to another individual.

Erik said...

What you're describing here sounds like a direct transfer of funds from the payor to the payee's bank.

Arguably, an advantage of checks is that they can be transferred to one or several payees without being deposited with each individual's.

This seems to be a function of the check as a paper instrument that can be exchanged several times without being deposited at a bank, and be ultimately payable with its final holder from the account of the original issuer.

What would be the m-banking equivalent of an instrument that was secure and transferable among multiple payees without involvement of the bank of each intermediary holder?

hs said...

The process is called "Check truncation" (also referred as Check21) in which large customers can capture images of their checks and send them electronically to their banks for clearing.

For retail customers, the bank where check is deposited would capture the physical check's image and send that image onwards for clearing.

While mobile banking may be a substitute for retail payments, the Check21 process definitely marks an improvement for business/high-volume check clearing.