As Canadians, we benefit from national payments systems designed with our best interests in mind. As technology advances, the Canadian Payments Association (CPA) is creating new opportunities for payment system users to send and receive payments over the national payments clearing and settlement systems more efficiently. Understanding, identifying and monitoring any potential risks introduced by these new efficiencies is key to the continued safety and effectiveness of Canadian payments. One such risk is the risk of duplicate payment items in the cheque imaging world. Understanding this risk and ensuring that appropriate measures are put in place to manage it effectively is essential to ensuring that Canadians continue to enjoy payments they can count on.
What are duplicate payment items
Duplicate payment items (duplicates) are created when the same payment item – a cheque, for example – is paid more than once. Duplicates have traditionally been rare in Canada; resulting only from isolated internal processing errors at financial institutions (FIs). For example, an FI might clear a photocopy of a cheque because the original was misplaced, then mistakenly clear the original cheque too.
Understanding the risk of duplicates in the cheque imaging world
The CPA's Image Rule Project gave Canadian FIs the option to process paper payment items such as cheques more efficiently by using images of the cheques instead of the original paper items. This paved the way for innovative services such as remote cheque deposit by smartphone in the Canadian marketplace. It's fast and convenient for FIs and their customers. But once the image is deposited and cleared, what happens to the original cheque? What are the chances that the original could be cleared too, resulting in a duplicate? What new risks does this introduce for financial institutions and their customers, and how can we manage them appropriately?
When image-based clearing was introduced in the U.S., it took a little less than 10 years for nearly 100% of cheques to be cleared electronically. What will Canada look like in 5 years, 10 years? What can we learn from the U.S. experience with duplicates in the imaging environment? We believe it's important to collaboratively and proactively examine this topic and explore related issues, concerns and opportunities.
CPA leads industry dialogue in support of safety, soundness, efficiency and user interests
On December, 8 2014, the CPA hosted a workshop in Toronto focused on understanding and mitigating the risk of duplicate items in the imaging environment. It was designed to share information, open constructive dialogue, discuss ideal outcomes, and brainstorm potential solutions with industry peers. We invited operations, risk and imaging experts from Canadian and U.S. FIs, as well as regulators, payment service providers and the Chair of CPA's Stakeholder Advisory Council, Brent Mizzen.
Canadian imaging experts who presented at the event included CPA's Janet Lalonde, Manager, Payment Operations and Lisa Sattler, Senior Policy Analyst, CPA. Brian Alexander, Director, Loss Prevention Strategy at Tangerine Bank (formerly ING), shared insights based on their growing experience with Remote Deposit Capture (RDC) and imaging in Canada.
Phyllis Myerson, Executive Vice President of ECCHO, was joined by Senior Vice Presidents Carolyn Martin (Frost Bank) and Lana Famiano (US Bank) to share experience and statistics from the U.S. transition to imaging, specifically in regards to duplicate items.
In the remainder of this 4-part series we’ll share lessons learned about duplicates since the U.S. transition to imaging, examine the current Canadian framework, and explore ways to minimize risk while enjoying the benefits as image capture and exchange gain traction in Canada.