Bank of New York Co. has introduced an electronic check-printing service that it hopes will help solidify its relationship with large mortgage banks and brokerage companies.
With the service, Bank of New York will transmit instructions over telephone lines to printers in the offices of its customers that will prepare official checks guaranteed by the bank and drawn on the bank's accounts.
The service is aimed at large mortgage banks that often must use official checks to close deals, and brokerage companies that use official checks to pay valued customers.
The hope is that these companies will find the service so convenient that they will concentrate more of their cash holdings at Bank of New York to avail themselves of it.
"There's a lot of advantages in terms of consolidation of balances and account relationships in the Bank of New York," said Timothy Holland, a bank vice president and manager of electronic banking products.
Three Signed Up
Mr. Holland said that three large mortgage banks, which he declined to name, have agreed to do early tests of the product, which will be generally available early next year.
Mr. Holland added that he "wouldn't be surprised" if 15 large Bank of New York customers began using the service next year.
Currently, if a company wants to get an official check from a bank, they can do it one of two ways: walk into the bank's offices, or, if the company has a personal computer electronic banking system, order the checks by computer.
In the latter instance, the request for the official check is sent from a personal computer in a treasurer's office through telephone lines to the bank. If the company has enough money to cover the payment and the PC user is authorized, the bank prints the official check, and express mails it to the company.
The service adds a twist to the PC request option. Instead of printing a check itself, Bank of New York send over the telephone line instruction for a printer in the customer's offices to print the check.
The message from Bank of New York contains all the instructions the printer will need to prepare an official check on blank check stock.
This includes the data needed to print the Bank of new York logo and the background pattern of the bank's checks, the magnetic ink characters with the bank's account numbers, and the signatures of Bank of New York officers.
Companies that use the service are supposed to benefit since they won't have to wait a day or two to get their official check from express mail, and they don't have to pay express mailing charges.
Opening Seen for Fraud
But at least one industry observer warned that such a systems could expose the bank to fraud.
David L. Shafer, national director of cash management consulting for Ernst & Young, in Kansas City, Mo., said he was concerned that Bank of New York could be opening itself up to a security risk once the information for printing an official check is in a printer or a computer outside the bank's offices. He said it was possible that this information could be stored and used to prepare forgeries.
"It's possible that a bank could get stuck big time," he said, since official checks are widely accepted as being as good as cash for large payments.
Controls Cited
But Mr. Holland said that Bank of New York has worked through the security issues, and has included enough controls in the product to make it just as safe as a wire transfer over the Fed Wire and Swift payment networks.
Mr. Shafer said that if this is true, then the service could "fill a real need, because it is a lot of trouble for someone that needs official checks to get a hold of them."
