Putting banks in balance, 11/12/01

Not since the advent of the fax machine has anything revolutionized check-adjustment operations as has the Chicago Clearing House Association's Web-enabled Electronic Delivery of Information and Bank Adjustments National Exchange (EDIBANX) system.

EDIBANX, introduced in pilot form last year and fully rolled out earlier this year, is a welcome overhaul for the paper-intensive, bank-to-bank balance-adjustment process.

Although only CCHA member banks and affiliates use EDIBANX, the system is poised to become a national standard for the industry, says DeWayne Baker, CCHA vice president.

Through EDIBANX, CCHA members have become ambassadors for Web-based, highly secure business-to-business transactions. About 165 banks in Illinois, Wisconsin, Indiana, Kentucky and North Carolina use the system, which handles more than $2.5 billion in daily transactions. These banks send about 90% of the clearinghouse's balance adjustments through EDIBANX, and by year-end the CCHA plans to have all adjustments handled electronically, Baker says.

Token-based security, coupled with a simple but effectively redundant network design, characterizes EDIBANX. The CCHA wins distinction as a runner-up in Network World's 2001 User Excellence Award competition for an elegant application of technology that wields heavy industrywide influence.

From one bank to another

The CCHA was formed in 1865 to facilitate the clearing of checks between member banks and affiliates. Today, the not-for-profit association serves as the clearinghouse for daily exchanges and settlements between its eight member banks - including Bank One, Bank of America and LaSalle Bank - and 400 Midwestern affiliates.

Here's how the exchange works: Suppose Bank One accepted $1 million in checks drawn on LaSalle Bank accounts during the day, while LaSalle Bank accepted $1.5 million in checks drawn on Bank One accounts the same day. Bank One would end the day owing LaSalle Bank a $500,000 settlement, which it would transfer to LaSalle's Federal Reserve account.

Of course, the process is rarely this straightforward. With the huge volume of checks passing through the exchange daily, problems such as tabulation errors or lost checks are commonplace. When such errors occur, the CCHA and the banks involved have to track down the source of the problem and issue cash-letter adjustments.

Discrepancies between banks may total millions of dollars daily, according to CCHA officials. And the tedious process of researching the adjustments can create additional errors, slowing down the exchange of information and dragging out settlements.

For 135 years, the CCHA relied on paper cash-letter adjustments to correct balance disputes between banks. It delivered those adjustment letters and their supporting documents to its members and affiliates via courier, overnight mail or fax machine.

"The compilation and delivery of this information was a very expensive, labor-intensive process," Baker says. Many banks hired full-time employees just to open envelopes and route adjustment information.

In 1998, CCHA management concluded that an electronic system would speed the process and help eliminate secondary errors. This obviously would reduce costs to banks.

So the CCHA formed a committee of in-house systems designers and potential users to outline such a system's requirements. The committee determined that the system must create an electronic audit trail for each adjustment, so that member banks quickly and easily would have all supporting documents for each adjustment should a discrepancy be discovered. Security, too, was necessarily high on the list; yet, users didn't want security to impose severe restrictions on the system's usability or scalability. It would need to support hundreds of authorized users.

Tokens and trails

CCHA dubbed the result EDIBANX. At its heart beats a secure CCHA-hosted Web site. Rather than paper forms, member banks in the U.S. exchange and settle adjustments electronically with other financial institutions also using EDIBANX. Users access the EDIBANX site via a browser and their ISPs, log on and can then complete the required online forms. They also may scan in any supporting documents.

EDIBANX relies on two front-end Windows NT-based servers for the Web site, protected by a Cisco PIX firewall, complete with LocalDirector load-balancing software. Behind the Web servers sit an SQL server, explains Kim Le, LAN administrator for the CCHA.

Three back-up servers stand by to kick into action and prevent service interruption if any of the main servers go down, Le says. To prevent communication interruptions, EDIBANX runs on two T-1 lines - one from Ameritech and one from AT&T. If either fails, the other will pick up the slack. And the entire system has a 24-hour back-up power supply from the Federal Reserve Bank of Chicago and ComEd, the local electric utility.

Password security is handled by Vasco Data Security's Digipass Controller software and accompanying Digipass 300 security tokens. The Digipass token is a small, calculatorlike device that issues one-time-use passwords to EDIBANX users every time they log on to the system. Users key in a preprogrammed personal identification number, and the token displays a six-digit password valid for 2 minutes. Once the user types in the password, the Digipass Controller software authenticates the user by matching up the PIN with the expected password.

If the user logs on but the session sits idle for a designated period of time, the system logs the user off.

The Digipass Controller software keeps a tally of all received passwords, so that a password is not used more than once. The software allows five attempts in the 2 minutes a password is valid, after which the token will lock up, preventing password cracking. The user must call the clearinghouse and submit valid identification information for the CCHA to reactivate the token.

"That token will not work again until we unlock it," Le says.

The EDIBANX system provides an audit trail that identifies a person's name, e-mail address and location for every transaction.

The CCHA wouldn't discuss the costs involved with developing the EDIBANX system. But Digipass 300 tokens cost $51.50 each, and the back-end software supporting the security ranges from $5,000 to $25,000, according to Ken Hughes, marketing manager for Vasco.

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