Innovation that matters
The Bank of New York Mellon
continues its leadership role in
adopting automated technology
Overview
■ Business Challenge
As one of the early adopters of
check imaging, even before
Check 21 spurred many banks
into action, The Bank of New
York Mellon resolved to adopt
digital check clearing. It sought
a solution that would fully lever-
age its existing check process-
ing infrastructure, while enabling
the operational flexibility the
bank needed to adapt to a
fast-changing market.
■ Solution
Using IBM Payments Director
and middleware technology,
The Bank of New York Mellon
deployed a new SOA-based
electronic check processing
system by service-enabling
existing assets, thus allowing
the bank to easily extend the
system to its banking partners
and deploy new payment
services rapidly.
Established in 2007 from the merger of Mellon Financial Corporation and The Bank of New York Company,
Inc., The Bank of New York Mellon is a leading asset management and securities services company,
uniquely focused to help clients manage and move their financial assets and succeed in the rapidly
changing global marketplace. Headquartered in New York, The Bank of New York Mellon has more than
$20 trillion in assets under custody or administration and more than $1 trillion under management.
■ Key Benefits “ IBM Payments
— Up to 90 percent reduction
Director enables us to
in manual touch points in the
check clearing process
take physical processes
— Greater than 50 percent that were supported by
reduction in time required to our legacy check
integrate new banks into the system and bring them
check clearing exchange
‘above the line’ by
network
— Reduction in processing
making them services-
errors and required oriented... This greatly
remediation strengthens our ability
— Improved flexibility to intro- to adapt and meet new
duce new payment services
opportunities.”
via SOA
— Louis Arkenau, VP of Image
Initiatives, The Bank of New
York Mellon
Reshaping the banking back-office with end-to-end electronic check clearing
Business Benefits
● Up to 90 percent reduction in manual
touch points in the check clearing
process
● Greater than 50 percent reduction in
time required to integrate new banks
into the check clearing exchange
network
● Reduction in processing errors and
required remediation
● Improved flexibility to introduce new
payment services via SOA
● Faster integration with acquired banks’
check clearing systems
With technology permeating nearly every aspect of commercial life, the traditional
check clearing process—in which customers receive their original, physical checks
along with their banking statement—held on for a surprisingly long time. By now,
however, many consumers are beginning to notice that instead of a stack of
checks, they’re receiving a smaller and more orderly deck of printed images that
they can also view online. Accustomed to a steady flow of conveniences such as
online banking, these customers see check imaging as the latest in a long string of
innovations enabled by technology. But in reality, it reflects the confluence of a
complex series of driving forces, important decisions on the part of banks and evo-
lution in the technology itself.
Paper trail
Historically, for a receiving bank to clear a check, it would have to physically trans-
port the paper check to the issuer’s bank. Before this can happen, though, the
receiving bank needed to run the check—along with thousands of others
every day—through mechanical sorters, which group the checks into bundles
based on issuing bank. Using a courier, each of these bundles would then be sent
to the appropriate bank along with a “cash letter,” which lists the amounts and
instructions for transmittal to other banks. While less than efficient, physical check
processing remained in place for two reasons: first, because it worked, and sec-
ond, because replacing it would be costly and complex. It took the 9/11 terrorist
attacks—which shut down air transport and kept billions of dollars worth of checks
from clearing—to show that physical check processing represented a potential
Achilles’ heel to the entire economy, and that a catalyst for change was required.
Two years later, Congress passed the Check Clearing for the 21st Century Act,
better known as “Check 21,” which enables banks receiving paper checks to cre-
ate and process digital versions of them—thus eliminating the need for further
physical transport and handling of physical checks. By dramatically altering the reg-
ulatory landscape, Check 21 fully opened the digital door for banks, but another
important incentive for banks to change their processes was already at work. With
more and more consumers paying via credit and debit cards and more banks
offering online bill payment, the volume of checks processed by banks has been
declining, causing the unit processing cost per check to rise proportionally. Even
before this confluence of events, however, The Bank of New York Mellon
(www.bnymellon.com) saw that the future of banking required automation, and so
beginning in 1994 it began the process of converting its traditional check clearing
process into an automated process that utilized images of checks, not the physical
checks. The bank chose IBM, on whose Check Processing Control System (CPCS)
the bank had long relied for its traditional check clearing process, to help them
convert to check imaging.
Electronic check processing solutions are comprised of components that address
Solution Components
each phase of the check clearing process. One component needs to address the
actual capture and storage of the check image. Another needs to enable the so- Software

called “day-one” processes that take place after image capture within the bank’s ● IBM Check Processing Control System
back office operations. Yet another needs to support the bank’s subsequent ● IBM Payments Director
“day-two” processes, which address exception items, such as illegible checks and
● IBM WebSphere Message Broker
overdrafts. While The Bank of New York Mellon’s decision to use the IBM Payments
● IBM WebSphere MQ
Director solution would have a major role in shaping its future electronic processing
capabilities, its choice of a broader architecture strategy—that is, how and where ● IBM DB2

to deploy it within its existing infrastructure—would prove equally significant. ● IBM CICS

Servers
Dynamism demands flexibility
● IBM System z
The bank’s existing IBM CPCS solution had, for a long time, delivered exceptional
reliability and performance running within IBM CICS® on an IBM System z® server. Services

However, the process changes inherent in electronic check clearing dictated a new ● IBM Sales and Distribution
set of IT requirements centered on flexibility, since the need to support change was Timeframe
essential. As The Bank of New York Mellon formed new correspondent banking
● Design and Implementation: 9 months
relationships, for instance, the new system needed the flexibility to rapidly, seam-
lessly and cost effectively integrate them into the process flow. Another source of
dynamism was the demand for new services in the payments area, such as check
clearing in Automated Clearing House (ACH) and least-cost routing services offered
to banks, which provides new revenue streams and enhances the bank’s ability to
differentiate through value-added services. To effectively capitalize on these oppor-
tunities, the bank would need the ability to adapt or repurpose key elements of the
solution without the major development and integration requirements that make
such changes costly and time-consuming. For these reasons, it was essential that
the bank follow a different approach than traditional mainframe deployments. It saw
SOA as the answer.

Why it matters
Because many processes within IBM Payments Director are built around SOA, the
bank was able to deploy the solution in a way that effectively turns key check- Moving from the manual processing of
paper checks to an automated, image-
clearing functions into services that are invoked in the course of the process flow.
based process enabled The Bank of
One such component is IBM Payments Director Gateway, which serves as the front New York Mellon to streamline its
end of the system and the means by which transaction information and messages operations, while at the same time
are directed to and from the core CPCS solution on the System z (where they are providing a source of new value-added
payments services, bringing a new level
stored in an IBM DB2® database). Among these messages are “electronic cash
of operational excellence. The fact that
letters,” which previously had been delivered in paper form. IBM WebSphere® MQ the solution was deployed within SOA
provides the core messaging functionality within this SOA framework. To further enables the bank to develop and bring
strengthen the solution’s SOA properties the bank is also deploying these new services—like check clearing
in ACH and least-cost routing services—
IBM WebSphere Message Broker as an enterprise service bus that will connect the
to market more rapidly and profitably.
solution’s key components and provide an environment for future SOA integration.
Louis Arkenau, VP of Image Initiatives, sees IBM Payments Director’s support for © Copyright IBM Corporation 2008
IBM Corporation
SOA as providing the bank with a new level of flexibility to optimize its key
1 New Orchard Road
processes. “IBM Payments Director enables us to take physical processes that Armonk, NY 10504
U.S.A
were supported by our legacy check system and bring them ‘above the line’ by
Produced in the United States of America
making them services-oriented and disconnecting them from legacy hardware and September 2008
legacy mainframe processes,” says Arkenau. “This greatly strengthens our ability to All Rights Reserved

adapt and meet new opportunities.” IBM, the IBM logo, ibm.com CICS, DB2,
System z and WebSphere are trademarks or
registered trademarks of International Business
Straight through error correction Machines Corporation in the United States,
other countries, or both. If these and other
The most immediate benefit of the new system is its dramatic impact on the effi- IBM trademarked terms are marked on their first
ciency of the bank’s check clearing operation. Under the previous system, a check occurrence in this information with a trademark
symbol (® or ™), these symbols indicate U.S.
could be touched by human hands many times over the course of the entire registered or common law trademarks owned
process, with each touch point representing a chance to mishandle the check. In by IBM at the time this information was
published. Such trademarks may also be
such a case, the check would need to be returned through a laborious, time- registered or common law trademarks in other
consuming process. Since the Bank had long been imaging checks, the Payments countries. A current list of IBM trademarks is
available on the Web at “Copyright and
Director solution allows for “truncated” checks which are incorporated into an auto- trademark information” at ibm.com/legal/
mated workflow that cuts the number of touch points by up to 90 percent, bringing copytrade.shtml.
Other product, company or service names may
the bank closer to the much sought-after goal of straight-through processing.
be trademarks or service marks of others.
This case study illustrates how one
Going forward, Arkenau believes that the flexibility enabled by IBM Payments IBM customer uses IBM products. There is no
guarantee of comparable results.
Director will also strengthen the bank’s ability to address its most pressing chal-
References in this publication to IBM products
lenges, including the operational demands of rapid growth, the need to efficiently or services do not imply that IBM intends to
make them available in all countries in which
integrate newly acquired banks and the need to seize fast-moving opportunities.
IBM operates.

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