Over the past four years, Robert L. Bryant of Signet Banking Corp. has learned what the "bleeding edge" feels like.
His experience with Signet's journey into the largely uncharted waters of check-image processing has led him to conclude that such forays are "not for the faint of heart."
Yet the frustration with the false starts and setbacks that inevitably accompany a pioneering effort has given way to satisfaction, as Signet's investment in image technology has begun to pay off.
By gradually shifting its approximately two million daily paper items from the traditional processing system to one that largely eliminates paper movements, Signet has reduced its item processing staff by 15% since 1991.
Salary savings and other efficiency gains have allowed the Richmond, Va.-based bank to recoup its multimillion-dollar investment, and executives are now talking about the second stage of imaging's evolution.
"The real impact of it is not in the obvious productivity improvements we have achieved, but will be in the ability to create new information- based products and services for our customers," said Mr. Bryant, who is a senior executive vice president at $12.1 billion-asset Signet.
"We've only just begun to see glimpses of its influence as an enabler of business strategy," he said.
Bankers generally agree that check processing operations industrywide are ripe for restructuring - particularly in the proof-of-deposit area, where check dollar amounts are verified and encoded in magnetic ink on canceled checks.
At most institutions, proof operators read the dollar amounts on paper items and key them into an encoding system. The labor costs for this task alone run close to $4 billion per year nationally, according to the Tower Group, a consulting firm based in Wellesley, Mass.
Observers have long maintained that these costs would drop if bankers were to apply imaging technology in the proof area. The experiences of Signet, Huntington Bancshares, Mellon Bank Corp., and a handful of other institutions bear this thesis out.
In an image-enabled proof operation like Signet's, a special camera captures digitized images of checks. Character-recognition software then "reads" the dollar amount from the images and automatically encodes the items.
At Signet, intelligent character recognition accurately reads about half of the bank's items, which dramatically reduces its need for proof operators.
"The reason you put in imaging is not because you want the image of the check, not because you want to send it to the paying bank, but to save on that data entry cost," said Diogo Teixeira, president of the Tower Group.
"The problem, of course, is trying to create a new application," he continued. "There are issues with the high-speed nature of what you are doing."
Despite the success of Signet and others, relatively few institutions have moved to install image systems for proof of deposit systems, according to Mr. Teixeira.
Of the nearly 60 billion checks handled in the United States each year, the Tower Group estimates that only 5% are imaged for any application and less than 1% for proof of deposit processing.
The reasons for bankers' caution are numerous. To begin with, the investment in an image proof system with character recognition is significant. Further, many fear disrupting workflows that have been fine tuned over decades of traditional processing.
Finally, some question whether an expensive upgrade to a check processing system is really worth it, given the toll that electronic bill payment and debit point of sale transactions are expected to take on check volumes over the next decade.
Proponents of check image point to the experiences of Signet and others as proof of the value of the technology. Signet executives said the system has paid for itself in cost savings in under three years - a fact that would startle many critics of the systems.
Mr. Bryant admits that the conversion road was rocky at times.
"The biggest obstacle we had was the fact that we were doing a simultaneous conversion of all our applications systems to Marshall & Ilsley's Integrated Banking System," he said.
However, he added that as image success stories emerge from the pioneering institutions, more bankers are likely to join in the imaging movement.
"I think there are some institutions who would prefer to see others implement it and learn from that experience," he said.
Adding to the likelihood that others will adopt imaging for proof of deposit is International Business Machines Corp.'s presence in the business.
Though IBM led the charge to check imaging in the late 1980s, some allege that it has stumbled in its development efforts, leading the industry to doubt the viability of the technology, observers said.
Unisys picked up the standard dropped by IBM and installed working systems at several institutions, including Signet, and this gave doubters reason to believe.
But many say the true turning point in popular opinion came when IBM announced its first image proof of deposit users, Mellon Bank Corp. and Barclays Bank PLC.
The reason many have awaited IBM's success is obvious: Big Blue is the world's largest computer company and the provider of check reader/sorters that handle nearly 90% of the industry's volume.
Even with IBM's support, the general adoption of image proof of deposit is still expected to be slow, because the institutions that want the technology typically operate large, complex processing operations.
Most institutions want to test the imaging waters with stand-alone applications, such as those for image statements, before jumping into the more expensive and risky proof operations.
This strategy is in keeping with the conservative nature of the banking industry, observers said.
Large institutions employing less complex applications typically hope to create a revenue stream before committing to proof of deposit.
Many community institutions, whose proof operations are typically too small to warrant installation of proof modules with character recognition, have also embraced statement and simplified proof applications.
Vendors are optimistic about the future of the business.
"We've grown our proof of deposit installation base and we've had phenomenal success with cash management (applications)," said Geoff Emerson, general manager with IBM Payment Solutions. "We couldn't be more delighted with the pace of our image progress."
The stampede to proof of deposit systems may yet occur.
But while most institutions cautiously evaluate image, the early adopters are pulling away from the herd faster than ever, introducing new applications for their technology, observers said.
Signet, for one, recently launched its Rapid Image product, which delivers check images in digital formats to corporate customers the day after deposit.
"We're providing the tools of imaging to allow customers to enter a new realm of doing business," said Howard Brooks, senior vice president with the bank.
"We deliver information in a format that can be integrated with the business systems our customers already have in place."
After the bank processes its items, Signet can deliver up to 40 checks per minute through a high-speed telecommunications link, or by CD-ROM, digital audio tape, or floppy disk.
Seven customers have signed on to the Windows-based service, and Mr. Brooks said that 12 more accounts will open over the next few months.
"This isn't just smoke and mirrors - this is something we are doing on a daily basis," Mr. Brooks said. "There's a lot of talk about what people plan to do or what they might do, but we are really doing it."
In the end, though, the pioneering image banks realize that other institutions will eventually catch up to them. The work they have done has broken the ice for those that will follow, and experts expect new adopters of image proof of deposit to install their systems much more easily than their predecessors.
"I think the importance of image technology in the future of banking can't be overestimated," Mr. Bryant said.
