FSTC Image Quality and Usability Assurance Initiative Phase I
EXECUTIVE OVERVIEW
Current Status: COMPLETE (launched in April 2004 and completed in July 2004); Phase II in Development;
The project team and FSTC have released the full project reports to the industry. (See Phase I press release)
Full Project Report (PDF, 1 MB): includes the project background, definitions, an Impact of Poor Quality model, usability requirements, and key legislative and rules references
Image Defect Metrics - Final
Report (PDF, 3MB): updated 05.08.05 outlines the 16 standard metrics
that the FSTC team developed and defined, and provides the basis for a Phase
II analysis to empirically test their effectiveness and establish quantitative
thresholds to derive usability
Quantifying the problem, defining industry requirements, and setting an action agenda for implementation
A. Project Summary
The FSTC Image Quality and Usability Assurance initiative has the long-term goal of defining an operational framework for the industry that ensures that any check image, regardless of its capture point, meets the industry's minimum requirements. A 90-day first phase is proposed that will quantify the problem and expected benefits of investment, develop the core requirements for image quality and usability, inventory the image metrics that can be utilized, and develop a detailed plan for Phase II. With this foundation in place, Phase II would seek to develop, test, and publish the technology and business specifications that together can be implemented by financial institutions, and technology vendors to minimize risk, maximize cost savings and ensure strong adoption of image exchange.
B. The Problem
With the Check 21 Act now law, and timetables set for implementation in late 2004, the U.S. banking industry is now quickly approaching adoption of check image exchange and check image capture at centralized as well as merchant, teller, and ATM locations. With financial institutions ultimately liable for defective or "untransactable" check images, financial institutions must ensure that image quality assessment and assurance capabilities are effective, or face significant financial, operational, and reputation risks.
Given that physical checks will be either destroyed or returned to customers at the conclusion of a payment transaction, rather than processed through the payment system, it is this groups' position that every check image capture point, whether centralized high-speed capture, or distributed low- and medium-speed capture, must have a robust, standardized acceptance/rejection engine capable of determining whether a check image is reasonably acceptable for downstream recognition and processing, and ultimate payment. However, there are no current industry-level definitions of what makes an image acceptable for processing and payment, and how the quality of an image can be ensured at a variety of capture points.
If current image quality capabilities are not adequate, especially for distributed capture points outside of the direct control of banks, financial institutions may face unprecedented levels of financial exposure. As financial institutions themselves will be liable for these faulty check images, the need to address this challenge should resonate clearly with our industry. A rough estimate of the financial exposure to US financial institutions approaches $26 billion per year:
Image suspect rate, on high-speed equipment, is 0.2 to 0.3% of prime pass
40-50% of these suspects are true defects
Distributed capture and image exchange may penetrate up to 80% of prime pass volume, to achieve potential efficiencies of image exchange and processing
Conservatively assuming 40 billion checks x 80% captured in a distributed environment x 0.20% suspect x 45% defective = 28.8 million unreadable images per year
An average check value of $900 yields $26 billion in potential exposure
While not a reliable figure, this does give scale to the challenge.
In addition to the financial risk of bad images, the efficiency gains of image exchange are also threatened by inadequate image quality and usability assurance at point of capture. If institutions rely on returning items to a bank of first deposit, for subsequent return processing, the amount of rework and lost efficiency gains also present a potential cost that diminishes the benefits of image exchange.
While technologies do exist to assess image quality at the point of capture, and messaging standards do exist to transmit this information between parties in the processing lifecycle (e.g. SDTU ANSI X9.37), consistent industry metrics for image quality and usability, and usage specifications for the x9.37 standard, need to be developed and adopted to ensure robust and efficient image exchange. Without this additional level of definition and associated feasibility testing, these challenges threaten to undermine the opportunity that Check 21 presents.
To summarize the challenge:
We are 12-18 months away from significant image exchange volume
Without a viable image quality/usability framework for the industry, there is significant financial and operational risk due to unreadable/"un-transactable" images, which grows as volume grows
There exist, also, potential costs (lost savings) from redundant effort validating, returning, and processing "bad" items, which also grow with volumes
Adoption of image exchange will be stunted by a lack of accepted image quality / usability standards, undermining efficiency gains
No direct control over emerging distributed capture environments (merchants, ATM, etc.) amplifies the need for accepted industry standards defining minimum image requirements at point of capture
If we, as financial institutions, don't step up and drive the definition of these standards, someone else will, and we may not like it
C. Solution: FSTC Image Quality and Usability Assurance Initiative
The vision of the project is to mitigate the financial and operational risk of untransactable check images by creating an industry-wide image quality operational framework that when implemented by banks, vendors, and customers, ensures check images meet industry minimum requirements regardless of capture point, vendor hardware and software, and institution.
The goals of the project are to create a working group comprised of financial institutions, check processors, solution vendors, and industry organizations to develop an operational framework for image quality and usability:
Quantify the potential risks and costs through MIS data collection and analysis
Create a comprehensive industry definition of minimum image quality and usability requirements, and how it is measured
Develop a shared vision of the process flows and "use cases" in the coming
Check 21 world to serve as a framework for discussion and development, and
as an important component of overall image quality assurance framework
Define and test image metrics and minimum standards that meet the image quality and usability requirements developed by the industry team
Develop and test usage specifications (image metrics and minimum standards) for X9.37 type 54 records, and other relevant standards, to ensure interoperability and consistency in image transmission (and possibly suggest improvements to the draft standard)
Implement an action plan to operationalize minimum image requirements at points of capture. For example, through a standardized testing process, implement a certification program for capture hardware products as compliant with the minimum requirements defined by the FSTC project
Develop an industry adoption and ongoing maintenance plan to maximize acceptance, and also future updates and further development
D. Phase I Deliverables:
A first phase of effort is proposed in this document to quickly quantify the potential problem in dollar and customer-impact terms, and to develop a common set of definitions and requirements that would serve as the foundation for future work. It is expected that at the end of this first phase, a go/no-go decision would be made on whether to proceed with further work against the vision and goals outlined above.
The proposed deliverable for this first phase of effort is a comprehensive foundational report, which would include the following:
Assessment Report: Quantifying the ROI
Will include MIS data approximating the scale and scope of the potential problem, in terms of financial losses and operational costs (lost savings)
Will examine impact for key stakeholders, including back office operations, customers, merchants, legal, fraud, etc.
Will estimate costs and expected benefits of further investment in this initiative
Definition of Image Quality and Usability Requirements and Metrics
Develop preliminary business-level quality and usability requirements for images across key stakeholders, including day 1 and day 2 processing, customers, legal, fraud, etc.
Inventory available image metrics and technology options, leveraging vendor technology and industry experience to-date
Use the image quality fields in a X9.37 Type 54 record as a starting point
Detailed Phase II Plan
Will define a plan to develop, test, and publish the required technology and business standards to create the industry image quality assurance framework
