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International payment processing requires unique solutions

Today, Feb 2001 by Breyer, Dietmar

CEO'S COMMENT

Until the mid 1980s, the Central European payment system was extremely labor intensive due to the use of the giro system method of payment processing. In this system, as many as 130-150 alphanumeric characters had to be keyed in for every payment. As of 1997, the German system has come full circle. All payments are now handled with minimum human intervention, truncated and shredded at the bank of first deposit (even for million-dollar payments), and payment processing is computerized.

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In the decade from 1985-1995, enormous strides had to be made to convert from the labor intensive payment processing procedures to extensive automation. This was made possible by major investments in imaging, image interpretation and more recently in forms recognition technologies. In addition, for centralized payment processing (widespread throughout Germany), additional technology development investments were also necessary for linking branches to headquarters data centers and also for archiving/retrieval.

Interestingly, these applications are also spreading eastward from Germany, Austria and Switzerland to the former East Bloc countries, notably Poland, Hungary and Slovenia, and even to sub-Saharan Africa. In the aftermath of the collapse of the Soviet Union, the eastern European countries had to completely revamp their antiquated banking systems. They elected the giro system, rather than the check system, partly because of the inherent fraud resistance of the giro approach.

During this period, the German banks converted to imaging, leading eventually to 100% conversion to meet the above mentioned mid-1997 deadline for 100% truncation. New image recognition techniques were developed during this period, not only to increase the percentage of payments which could be recognized, but more importantly, to minimize so-called substitutions, i.e., wherein a 7 could be read as a 1 or vice versa.

To achieve the required low level of substitutions (target of 0.04%), the approach was to utilize the best features of existing, commercially available, but conflicting character recognition engines by using 2-3 of them in parallel and then resolving resulting differences. An algorithm (weighted voting method) was successfully developed to achieve this goal, and introduced to the German market in 1993. In addition, to maximize read rate, and to minimize substitutions, it was demonstrated that gray scale imaging was needed in addition to bitonal. Software was developed so that the additional data storage associated with gray scale could be kept at a minimum.

This technology was continually improved in the subsequent 2-3 years until the market was fully comfortable with it. At that point, the banks began to express an additional need. Having converted their payment processing methods to imaging and character interpretation, they asked how they could process the vast amounts of paper accompanying these payments, for example: invoices, mortgage payments, insurance documents, loans, gift fulfillment documents, tax payments, etc.

The solution was to develop reader sorters capable of handling giro documents (payments) intermingled with large paper. These machines could do so by laying the payment documents and related papers flat as in a conventional photocopy machine, while at the same time retaining all the required payment processing functionality, including endorsing, MICR encoding and check sort- ing functions, in addition to front and rear imaging. The giro payments (or checks) could be identified in the machine by the presence of the MICR line. Those papers not having MICR are treated as accompanying documentation.

This approach turned out to be what is needed in the U.S. market in applications such as wholesale lockbox, child support payments, explanation of benefits payments, and the many other situations in which large amounts of paper accompany checks. Sales and marketing for such products were initiated in the U.S. in 1996, leading to the first test installation of this type of machine, at Bank One in April 1998, in a wholesale lockbox application, utilizing applicational software provided by Cash Management Solutions. At this point, some 50 such machines are in use in the U.S., many of which are in daily production, with the remainder in test situations. Applicational software for these installations is provided by AB Software or Image Scan, in addition to that from Cash Management Solutions.

Having established character recognition technology in the European market, recent developments in Germany relate to forms recognition, including free form, in which selected parameters are searched for on a form and then interpreted, minimizing human intervention in labor intensive processing applications. Success has already been achieved in Europe in this new and exciting technology. In addition, innovative European archiving/ retrieval technologies have been commercialized to respond to the needs of the large decentralized European banks.

International payment processing requires unique solutions

Today, Feb 2001 by Breyer, Dietmar

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