Banks lost millions on digital cheque project

A multimillion-dollar project by Canada's major banks and credit unions, which would have cut carbon emissions and saved money, has been scrapped. The digital clearing system would have ended the practice of couriering about three million cheques around the country each day.

Bank insider says money wasted, 'green' opportunity missed

Under the scrapped system, digital cheques customers see online could have been converted to data for instant clearing. (CBC)

A multimillion-dollar project by Canada's major banks and credit unions, which would have cut carbon emissions and saved money, has been scrapped because of numerous delays and complications.

The proposed digital clearing system would have ended the expensive practice of couriering about three million cheques around the country each day for processing.

 "When a bank loses money in a large-scale project like this, that cost should be outlined somewhere," said Blair Smith, a former project manager with one bank, who worked on the system in Vancouver for three years.

"They have a responsibility to tell the average consumer or shareholder where they failed."

Smith lost his job last fall, during the economic downturn, and received a severance package. He requested that CBC News not name which bank he worked for. 

He is speaking out about the project initiated through the Canadian Payments Association in 2002 and dubbed Truncation and Electronic Cheque Presentment, or TECP. Association members are all financial institutions and it gets its funding from those members.

System could have saved millions

Many Canadian banks already scan cleared cheques to digital images and usually charge the customer a $1.50 fee to view them. The TECP system would scan those cheques at deposit and transfer the data immediately to other banks the money was being drawn from.

About three million paper cheques are carted around Canada every day for processing — a practice that costs millions and contributes to carbon emissions through transport. ((CBC))

Cheque clearing would have become much faster and cheaper. It also would have ended the current practice of transporting 997 million paper cheques around the country annually, by courier and aircraft, among banks and processing centres.

"Cheques are flying all over the country," Smith said. "Moving them around is a total environmental strain. You have six cheque processing centres across the country, moving around little pieces of paper."

The Canadian Payments Association confirmed the endeavour was scrapped last year — after numerous delays — primarily because the banks found it too difficult to co-ordinate their systems.

"We decided to cut our losses," said association spokesman Geoffroi Montpetit. "This was an incredibly complex project, from human resources to infrastructure."

Montpetit would not disclose the cost of the failed project, but confirmed it was in the multiple millions of dollars.

"We don’t publish financial data for any of our projects, so we will not publish this data," he said.

"A lot of money, wasted," Smith said. "Thousands of hours were poured into this project."

Dozens of people from 11 financial institutions worked on the digital clearing system, representing all the major banks and credit unions. The industry even successfully lobbied the federal government to amend the Bills of Exchange Act in 2007 to accommodate the new system within the law.

Former project manager Blair Smith says customers should know that banks wasted time and money and failed to deliver. ((CBC))

Technology was purchased to build the new system, which then had to be decommissioned when the project was scrapped.

"Once deadlines weren't met time and time again, you were just thinking, 'Why are we doing this?'" said Smith.

Canada lags behind U.S.

By contrast, several U.S. banks have already converted to digital cheque clearing. Businesses there can now deposit cheques electronically on their premises, using their own scanners.

"If you look at other jurisdictions, we do have a long way to go in terms of business-to-business electronic exchange," Montpetit said.

To complicate matters more, it turns out Canada's financial institutions do not hold a patent for the technology they were using to build the new digital system. DataTreasury, a U.S. firm, claims to hold the patent and is suing six Canadian banks, alleging ongoing patent infringement.

"It was astonishing that they didn't hold the patent to the foundation of TECP — this project — which was cheque imaging," said Smith.

Banks and credit unions spent years on the system, but insiders say they couldn't integrate their systems. ((CBC))

Thirty U.S. banks have already paid settlements to DataTreasury after similar lawsuits were filed. If the company's suit is successful in Canada, it could cost the banks several million dollars more.

"The Canadian banks brought this on themselves," DataTreasury spokesperson Eric Wetzel said from Texas. "Given the success of the campaign in the U.S., the company expects it will eventually reach a settlement with the Canadian banks."

Digital cheques 'not worth it'

Consumers' Association of Canada president Bruce Cran said he's happy the cheque imaging project was scrapped. He believes it wasn't worth the investment in the long run, because so many consumers are paying bills electronically.

"I think the cheque, as we've known it, is doomed," said Cran. "I'm sure the banks will now be giving incentives and maybe even putting obstacles in the way of using cheques."

Figures from the Canadian Payments Association show more than 80 per cent of payments in Canada are made electronically. More businesses than consumers still use cheques, said the association, but cheque use is declining rapidly overall.

Cran said he has met people from Europe who have never seen a cheque. He would like to see cheques phased out entirely.

"It seems to me just a tremendous amount of money may be available for savings, just from stopping those planes from flying across Canada, stopping the trucks and the people [who] have to lug the paper around at night," Cran said.

Bruce Cran of the Consumers' Association of Canada hopes cheques will eventually be pushed out by electronic payments. ((CBC))

"Let's hope that some of the savings that come from what could happen will be given as a benefit — directly or indirectly — to consumers."

The Canadian Bankers Association declined to give an interview on behalf of the banks but sent an email citing the decline in cheque usage.

"In the annual research that we commission, The Strategic Counsel [polling firm] found that in 2008 only seven per cent of Canadians report using cheques as their main means of paying bills, down from 15 per cent in 2004," said Maura Drew-Lytle, the organization's media relations director.

"In contrast, 35 per cent now report paying most of their bills through online banking, versus  26 per cent in 2004."

Given how the cheque clearing system "went off the rails," Smith said, financial institutions should be more accountable for their spending overall.

"Why shouldn't they speak to their shareholders and their customers and say that 'We just lost a substantial amount of money for a project that wasn't delivered?'" he asked.

 "You pay a lot of banking fees to not know what is going on in the background."