Check Data and Image Segmentation for Payment Processing
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Solution Overview
Problem
The inefficiencies in processing paper checks, including labor-intensive and error-prone double processing by both payer and payee banks, and the need for physical handling and storage, are not fully addressed by electronic check processing, which lacks proof of authorization and error resolution capabilities.
Innovation Solution
A system and method where check data is captured at the point of purchase and later matched with check images using a third-party payment processor, allowing for digital archiving and image storage, enabling efficient processing and reduced merchant burden by outsourcing scanning and image capture.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If paper checks are physically transported and processed by both payer and payee banks, then authorization evidence and error proof are maintained, but processing time and labor costs increase significantly
Solution Approach 1:
The check processing system is segmented into two independent streams: (1) electronic data capture and processing at point of sale, and (2) physical check transport and imaging at a remote facility. This segmentation allows the payee bank to process transaction data immediately while the physical check is handled separately, eliminating the need for sequential processing and reducing overall processing time while maintaining authorization evidence through the digital image.
Solution Approach 2:
A third-party payment processor serves as an intermediary between the merchant and the bank. This intermediary captures check data electronically at the point of sale, transmits it to the bank for immediate processing, and simultaneously manages the physical transport and imaging of the check. The intermediary enables electronic processing speed while preserving the physical check for authorization verification.
2Loss of information
If both payer and payee banks process the check to collect and record information, then complete transaction records are created, but double processing increases error probability and time consumption
Solution Approach 1:
The system performs preliminary action by capturing all necessary check data (amount, account numbers, routing information) electronically at the point of sale before the check reaches the bank. This preliminary data capture eliminates the need for the payee bank to perform information extraction, reducing double processing to a single verification step and improving processing efficiency while maintaining complete transaction records.
3Reliability
If paper checks are physically handled and stored, then authorization proof is maintained, but handling costs and security risks increase
Solution Approach 1:
The system creates a digital copy (image) of the physical check at a remote facility and transmits this copy to the bank for processing and storage. The original physical check remains in secure custody at the remote facility, while the digital copy enables electronic processing and authorization verification. This copying approach maintains authorization proof while eliminating the need for the bank to physically handle and store the original check.
Data Source
AI summary
A method of processing paper checks that divides into two independent paths the processing of a data file representing a check and the digital image of the check. The data files and image files are separated both in time and in space, with the data files being used to promptly initiate the transfer of funds to and from appropriate accounts, while the paper checks, at a remote location and typically lagging in time, are scanned to create digital image files and deposited as an image or substitute check if deemed ACH ineligible. The method provides for the comparison of data files to image files, based on MICR information, to find any unmatching or mismatched items for exception processing and a process to manage ACH-ineligible items as an image or substitute check. A process for translating raw MICR data to a desired format, and for identifying the proper translation to be applied, is described.