Chemical Banking Corp. on Monday became the largest U.S. bank to broadly embrace image technology for check processing.
The New York-based superregional announced plans to spend about $50 million over the next five years to convert all phases of its check operations - including proof of deposit, data archiving, and statement rendering - to an image system from International Business Machines Corp.
Experts called the commitment a solid stamp of approval for check imaging, which entails processing digitized pictures of checks rather than the items themselves. Chemical ranks among the top 10 check processors, handling nine million checks daily.
"This is going to validate the technology for the rest of the industry," said David Medeiros, a bank technology consultant with Tower Group in Wellesley, Mass.
"Banks have been waiting for it as a truly viable technology for high- volume processing."
Hundreds of institutions have been using imaging for parts of their check processing operations, but only a handful are using it as extensively as Chemical envisions - and none are as large as Chemical.
The contract marks an important victory for IBM, which pioneered check imaging in the mid-1980s but stumbled and lost its leadership position to Unisys Corp. in the early 1990s.
Since then, observers say, IBM's imaging unit has recaptured its momentum, having sold large-scale systems to Mellon Bank Corp., Barclays Bank PLC, Royal Bank of Canada, and now Chemical.
Several observers maintained that IBM holds the key to widespread adoption of image-based check processing, since its computers, operating systems, and check processing hardware are used by the vast majority of banks above the community bank level.
Chemical expects the system to pay for itself in three years, mainly through cost savings in the proof-of-deposit area. Since image proof-of- deposit applications are equipped to automatically read numbers from check images, banks can lay off or redeploy workers who manually key such data into the system.
Bank executives said the system also will allow for new fee-based services in both the retail and wholesale areas.
The bank plans to replace its microfilm archival system and develop on- line access to check images that may be used to provide better service to cash management customers.
"Clearly we see the business case composed of not only the increase in efficiencies by introducing image in our check processing, but also the new value-added services and products available with image and with the archive capabilities," said Michael J. Pasiecki, a senior vice president with the $178 billion-asset bank.
Denis O'Leary, Chemical's chief information officer, noted that imaging is the first major check processing breakthrough in many years.
"This is a major event in the check processing industry," he said. "The industry has not used technology to change fundamental processes since the introduction of (magnetic ink character recognition) in the early 1960s."
Chemical Bank executives did not estimate the recurring financial benefits expected from the system.
However, Mr. O'Leary noted that the productivity improvements will be significant. For example, in the current processing environment, a check is handled an average of 12 times. With the new system, checks will be touched by people only twice, on average.
