With the biggest banks now clearing checks electronically with one another as a matter of course, attention is turning to finding cost-effective ways to deliver images to small banks as well.
It's an area that image exchange networks have identified for growth, but bankers have found that the cost advantages from connecting to one huge trading partner are harder to achieve with smaller financial companies, where there are thousands of potential partners and the volumes are much lower.
Now, Wells Fargo & Co. has come up with a new way to reach its smallest trading partners. The company said it has cut its check clearing expenses significantly by sending images to community banks and credit unions through the Fiserv Clearing Network instead of through the Federal Reserve banks.
Mark P. Walker, a senior vice president at Wells, said the agreement announced last week with Fiserv Inc., which clears checks on behalf of 1,600 community banks and credit unions, gives the San Francisco banking company a less costly way to route images to the routing and transit numbers of Tier 3 financial companies.
It was previously using the image network operated by the Fed, which typically prices its services by volume, a strategy that he said does not favor small banks.
"Those RTNs are expensive endpoints through the Fed," Mr. Walker said in an interview last week. It can cost as much as 10 to 15 cents per item to reach those Tier 3 endpoints, in contrast to the Fed's Tier 1 endpoints, which cost pennies, he said. In a business where costs are measured in fractions of a cent, even small savings can accumulate quickly over the course of millions of items.
Wells began exchanging a relatively small number of images with the Fiserv network in August, and "really ramped up the volume" in the past few weeks, Mr. Walker said. It is currently clearing more than 500,000 items per day through Fiserv, and expects that figure to reach 2 million early next year.
Wells has long cleared check images with other big banks through Viewpointe LLC, which operates a massive archive and clearing system for 11 major financial companies and is co-owned by Wells. Wells is delivering its check images to Fiserv through Viewpointe's Pointe2Pointe service, which was developed to attract smaller financial companies to the Viewpointe clearing system.
PaymentsNation, a Dallas company that Viewpointe bought this month, handles the settlement.
Viewpointe has been trying to court smaller users, and this year introduced a way for banks with low image volume to access its system through the Internet.
Wells is not the first company to use the Pointe2Pointe service to reach Fiserv, though this agreement is the most extensive to date.
Stephen Ward, an executive vice president in Fiserv's financial institutions group, said his company agreed to connect to Viewpointe in 2005 and reached an agreement with Bank of America Corp. in 2007 to exchange images over the Pointe2Pointe service.
However, that agreement has a different settlement setup, he said, with B of A's payments being handled by settlement banks on the Fiserv Clearing Network.
"The big difference is that" the Wells deal "offers PaymentsNation settlement."
He said the Wells arrangement could appeal to community banks that do not currently clear check payments over the Fiserv network, because they need not establish accounts with new settlement banks; PaymentsNation can post the debits and credits to their existing Fed accounts. "This business is all about clearing costs and funds availability."
Though Fiserv is now trading images with both Wells and B of A, Mr. Ward said that these arrangements may not serve as models for other big banks, including other companies that use Viewpointe.
"It's not necessarily our intention to have a whole bunch of these" deals, he said. "There was a fairly large concentration of checks that our banks were depositing … that were drawn on Wells Fargo."
However, Mr. Walker said that the agreement with Fiserv will enable Wells' correspondent banks to route images to Fiserv's clients, because it adheres to the Electronic Check Clearing House Organization standards.
"This will give them access to those other endpoints through Wells Fargo," he said.
Kevin Martin, a Fiserv senior vice president, said the imaging industry is still evolving. Viewpointe said in January that Fiserv would move its image archive to the shared archive and eventually clear checks using "image share," the model that Wells, B of A, and other big banks use within the Viewpointe system.
"In five years it may look a little different," he said. "As electronic exchange matures over time, having these items in the Viewpointe archive and having different clearing relationships with the banks will help drive down the cost, because you're putting the item in the archive once."