Introduction What It Is? Merchant - Deposit Express Bank - Item Processing FAQ's Solution Diagram Business Case < back

Introduction • Check21 meets the needs of merchant accounts as well as commercial banks, credit unions, and local savings banks wishing to optimize their check processing which complies with the mandates set for Check21 by the Federal Reserve. • This solution offers not only the interface for scanning, endorsing and generating Fed compliant images and data, but it also integrates seamlessly with most document management line of products including SmartSearch and Fortis. • Square 9 Check21, a best-of-breed solution leveraging C&A Associates technology, is sold in packages and as modules. The two packages that are offered fall into either a simple merchant deposit capture for a very easy to use interface including corrections and balancing or a robust Check21 solution which includes data mining, remittance processing, report and statement rendering, virtual balance totaling and support for ICL/ECL import. • The other solution called C21 Express can be used by merchants (commercial accounts) or by agents of the Federal Reserve (i.e. Banks, credit unions, etc). The C21 Express solution bundle has built-in x9.37, FTPS transmission, FedForward, FedReceipt, FedReturn along with corrections, balancing and a research module for check history • As add-on options users can add an automated remittance processing, data mining for semi-structured data extraction from the check which may include payee, address, drivers license number, SSN and/or anything in the top left corner of the check image. What Is It? • The Check 21 Act, which is also known as the Check Clearing for the 21st Century Act, was signed into law in October 2003 and went into effect in October 2004. It requires financial institutions to accept and be able to process Image Replacement Documents (IRD's). The law is intended to encourage the use of imaging technology to process and clear checks instead of moving and processing them manually. 1 - Deposit Express (Simple Merchant Capture): • With the adoption of Check21 by banks, more and more commercial customers are seeing the value in reducing float and check imaging. • The Deposit Express solution provides a simple packaged scan interface with most common check scanners as well as Silver Bullets Ranger API's. Included in the solution is a built-in x9.37 ICL creator, FTPS transmission utility,virtual deposit ticket creation, batch total balancing, automated quality assurance, virtual deposit ticket creation and query lookup feature. As an add-on feature, CAR/LAR (Courtesy amount recognition/legal amount recognition) is available at an additional charge. • This solution is designed for merchant accounts only and is a reduced functionality solution to its bigger brother C21 Express • Software and check scanner bundles are available upon request 2 - Merchant, Bank Branch and/or Teller Capture: • C21Express is a one-of-a-kind product designed to bring the benefits of Check 21 to credit unions and banks not needing the complexity of image statement processing. • C21Express provides credit unions and banks complete Check 21 capabilities. Designed for institutions that do not require extensive statement processing and archive functions, C21Express is a simple, easy-to-use solution which processes incoming image cash letters and allows institutions to create return item image cash letters. Using a combination of database technologies and file formats, C21Express can be scaled to meet the needs of nearly any financial institution. • C21 Express takes advantage of the latest Microsoft technologies to provide a powerful, easy-to-use environment for performing complex transaction processing in financial institutions. Note: C21 Express includes: ProofPC32= image proof-of-deposit check and item processing ImageChex = check imaging, archive and statement preparation Frequently Asked Questions (FAQ) What is an Electronic and Image Cash Letter (ICL/ECL)? • A cash letter is an inter-bank transmittal letter that accompanies cash items sent from one financial institution to another. • The X9.37 file is the electronic image version of the cash letter. An X9.37 or Image Cash Letter (ICL) is the transmission of an electronic file to a Federal Reserve Bank or other financial institution, containing cash letter totals and individual items drawn on eligible endpoints. The electronic transmission contains the MICR information from the checks and total information for reconciling in standard format. • An ECL is an Electronic Cash Letter (X9.37 file) with no image data and an ICL is an Image Cash Letter ( X9.37 file) with image data. • The X9.37 Image Cash Letter files may have multiple uses. They can be used to exchange funds with another institution or to print IRD's. In Remote Deposit Capture systems, they provide a standardized way of sending check image and deposit information from the capture site to the depositing institution. What is FedReceipt? • Enables “straight-through” electronic check processing for a portion of your inclearings. This service option offers cost reductions, the ability to create your own substitute checks, a discount on Reserve Bank deposits and no cost presentment of items deposited with Reserve Banks in image cash letters. • Enables you to receive all imageable items drawn on your institution in an image cash letter in lieu of a paper cash letter presentment. This option offers cost reductions, earlier posting and improved balance reporting, elimination of transportation delays, the ability to create your own substitute checks and a discount on Reserve Bank deposits. What is FedReceipt Plus? • Offers a bank of first deposit the ability to receive return items in an image return letter. It provides a discount on return items deposited with the Reserve Banks. What is FedForward? • FedForward Services provide financial institutions with the ability to submit an image or paper cash letter of forward collection items that the Federal Reserve Banks will clear and Banks present as either substitute checks or an electronic file to the paying bank. How are ICL’s created within the solution? • Cash letters are prepared electronically either at the branch location or the central site. Using ANSI standard X9.37 files, cash letters are sent electronically to the Federal Reserve Bank or another correspondent bank. • Using electronic cash letters eliminate courier costs and result in quicker funds availability. Check21 Solution includes extensive testing for possible errors to minimize returns and adjustments, and these tests can be performed throughout the day to provide ample time to correct errors before sending the file at the end of the day. What are acceptable check items for Check 21? • All checks, except foreign checks, are eligible to become substitute checks, including the following: • Consumer checks • Business checks • Corporate checks • Government warrants • U.S. Treasury checks • Money orders • Traveler’s checks • Canadian checks, at present, Check21 cannot accurately parse as Canadian bank routing numbers are 8 digits and typically include a dash. Paper ICL option is available for Canadian checks What is the next Federal Reserve standard and what is its benefit? • As of Sept 2007, the new X9.100-181 specification will specify what TIFF fields can be used and the allowable values for those fields that will support interoperability for check image exchange processing between financial institutions. • This new standard has been approved. It will require tough new rules for TIFF images within Image Cash Letters. • Image exchange standards have adopted the TIFF 6.0 specification as the image format scheme How are NSF checks handled? • Regarding NSF checks, after the bank or credit union receives the file they will do some account reconciliation and review. Any checks they find that are from an existing account (account hasn’t been closed), and that account has the necessary funds to issue the check, the financial institution can issue the check electronically 1 more time. • Check21 by Square9 can import a X9.37 file. So, after importing the file, the bank or credit union can delineate either a credit or debit and a return or not. What is an IRD? • IRD's are also known as substitute checks. An IRD is created from an X9.37 file, whereby the physical check is converted to a machine readable paper substitute. The IRD contains an image of the front and back of the original check and is MICR encoded. • An IRD must also bear a legend stating: “This is a legal copy of your check. You may use it the same way you would use the original check.” What is X9.37? • X9.37 is an electronic file specification that was developed to support the Check 21 Act and is the industry standard for electronic check exchange defined by the American National Standards Institute and adopted by the Federal Reserve Bank. In Check Capture, a X9.37 file is created after a user has scanned and committed/archived their batch of checks. The X9.37 file, or ICL, is then uploaded to a paying institution where it will be cleared electronically or used to print Image Replacement Documents (IRD's). Has SmartSearch Check21 been certified by the Federal Reserve Bank (FRB) to be a Check 21-compliant system? • No. The FRB does not certify software or software vendors. Instead, financial institutions that want to establish an image exchange agreement with the FRB must go through a certification process. As part of the certification process, the financial institution will send the FRB a X9.37 test file derived from their check imaging system. The FRB will then report back to the financial institution as to whether or not they were able to process the file. If the FRB could process the file, then the financial institution is essentially on its way to using the FRB’s FedForward Image Cash Letter Deposit solution. • The same holds true for financial institutions that want to take advantage of the FRB’s FedReturn and FedReceipt (inclearings) solutions. Does SmartSearch Check21 support direct exchange with the Federal Reserve? • Yes. Check21 from Square9 can output a X9.37 file that meets the Federal Reserve requirements. Then, the financial institution utilizes one of the recommended methods to transmit the X9.37 file to the Federal Reserve for processing. Using built-in FedForward integration software allows the transmission of ICL’s to the Federal Reserve without any third party software Can Check21 integrate or co-exist with my core financial system? • Yes. Check21 from Square9 architecture allows for integrations with virtually any system. After users have finished imaging their checks, a batch commit is performed. During the commit process, the Check21 solution can create a standard X9.37 file that can be uploaded to most financial systems that support the X9.37 file format. In addition, the cheeck21 solution can also create an XML, comma-delimited text file (for example) that would be used to update an accounting or banking system. Process Flow Diagram Business Case • One of the leading factoring companies out of Minneapolis, MN specializing in purchasing companies accounts receivable logs needed a solution that would allow paper based checks to be electronically captured and sent to their bank, M&A, thus reducing float and giving the company a competitive advantage in the market place. Since the company buys, owns and collects against millions of dollars each year, the cost savings was extraordinary. • Additionally with the seamless connection to a document management repository along with automatic data entry of key check details like: amount, payee, account, routing numbers – the company can quickly generate internal and external reports showing collection amounts and status. • Furthermore, when the ICL submission to the bank is compete, custom middleware application allows for updating of the companies ERP application • When the company accepts receivables from a company the company or broker service typically provides a PDF detailing the monies owed. Leveraging a Planet Press process each PDF is retrieved by Planet Watch from a directory location, converted to plan text, data is extracted and then re-generates the PDF file. This provides automatic data points pulled from the PDF which quickly updates the companies ERP solution. • Now receivables can be received without any manual intervention. Workflow rules then allow notification and routing to knowledge workers providing them a means to execute manual processes.

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