A private-sector competitor of the Federal Reserve's check clearing service has slashed its fees by about 19%, bringing them down to almost half those charged by the central bank.
The National Clearing House Association said the per-item price cuts point to the success of the upstart organization of achieving economies of scale.
The effort, a potential threat to the Fed's dominance in interbank check clearings, was officially, launched in the spring of 1992 when Huntington Banc-shares Inc., the Columbus, Ohio, company that spearheaded the effort, won permission from the Fed to provide settlement services for check clearings that would bypass the Fed.
|A Little Creativity'
The system, up and running for about a year, has 26 bank holding companies as members, and some have multiple subsidiaries participating.
"This shows that with a little creativity, and with banks working together, you don't have to spend much money in order to save a lot of money," said John Shain, president of Littlewood, Shain & Co. of Exton, Pa., which acts as consultant to the clearing house.
Some bank members will begin to save hundreds of thousands of dollars annually in 1994, Mr. Shain said.
One banker who participates in the clearing house and who requested anonymity said, "Every bank [in the group] is a little different, depending on how efficient their check operation was to begin with. We think we did a very good job, but we still are saving some money."
A Million Items Daily
The National Clearing House Association is clearing a million items a day, valued at up to $800 million, for 45 banks.
By January, the association expects to process $1 billion a day, Mr. Shain said.
The Fed still clears the majority of checks in the country. A Fed official said it processed 18 billion items in 1992, of which 40% were sent from one district to another.
The central bank handles about 50% of all interbank checks. and no competitor hat more than 3%, according to John P. Borden, president of the National Organization of Clearing Houses. Mr. Borden is also president of the Kansas City (Mo.) Clearing House Association and president of the region's automated clearing house, Mid-America Payment Exchange.
How the System Works
The National Clearing House Association operates in the following way in each major city where it has members, a bank is designated as the clearing agent for that city. That bank receives the checks for the city, sorts them, and delivers them to the appropriate bank.
Huntington runs a computer system that at the end of each day allocates netted payments for the items that have been presented.
Since the founding of the clearing house, Huntington has formed a separate subsidiary, Huntington Technology Inc., to handle the settlement services for the clearing house. U.S. Check, a courier service based in Columbus, Ohio, transports the checks.
According to the new fee structure, banks will pay on average 0.8 cent per item, compared with the Fed's average charge for "city" clearings of 1.5 cents per check.
In response to a service established the Fed in some cities last summer, the National Clearing House recently established a service for banks that have very high volumes of checks drawn on another member, and want to send these items directly to the other bank rather than commingled with items for other banks.
These fine-sorted "on-us" cash letters, drawn on other clearing house members, will cost a flat fee of $10, plus an additional $1 for each such cash letter sent. This service is also for items that are presented electronically, including those sent by Electronic Check Clearing House Organization members that are also members of the National Clearing House.
The clearing house also has introduced a settlement service in anticipation of same-day settlement regulations. These will require on Jan. 1 that banks stop charging any presentment fees for items that are received by 8 a.m. Member banks can continue to send commingled cash letters, rather than switch to more expensive fine-sorted cash letters, and not be charged a presentment fee.
The National Clearing House also voted to open its membership to smaller banks by lowering the minimum Tier 1 capital requirement for membership to $50 million from $100 million. Approval from the Fed is pending.
In the past, smaller banks have argued that the organization served the interests only of big banks.