Check 21 is the Federal Reserve’s electronic check clearing service. It’s an asynchronous network where batches of check images are sent to the Federal Reserve, sorted, and transmitted onwards to payers’ depository institutions. Check 21 settles within the financial institutions’ Federal Reserve accounts.
Check 21 submissions require images of the front and back of the check. Details like the amount, routing number, and account number are parsed and included in the submissions. Although much of the parsing can be automated, check processing is labor intensive.
As an alternative to Check 21, ACH supports converting checks to ACH transfers. These check conversions are limited to checks under USD 25k and can’t be used for checks with auxiliary on-us data (which is typically a check number).
If a payer’s financial institution declines to accept a check (for, for example, insufficient funds or the account being closed), they can return it through Check 21.
Explicitly, Check 21 doesn’t intermediate disputes. This is different to the card networks.
The Federal Reserve’s Check 21 schedule is here:
Check 21 uses a public format. The specifications are here:
The format mixes EBCDIC and in-lined TIFF images.
Operating a Check 21 integration
Check 21 doesn't have a positive feedback mechanism. You don't know if a check has been accepted by the payer's bank. You solely know if you haven't received a return yet.
There are specialized check scanners which scan the front and back of checks and parse the Magnetic Ink Character Recognition (MICR) values. These can be useful if you’re accepting physical checks at scale.
Check 21 also supports Remote Deposit Capture (RDC). This allows account holders to submit images of checks.
While most returns are received through the regular return item channel, you’ll also want to watch for adjustments. They’re far more manual.