By offering a hosted version of its image-exchange software, The Clearing House Payments Co. plans to extend its clearing and settlement service to all 1,600 institutions that use the company for check processing.
The New York company already offers a distributed traffic agent software system, which its big-bank customers are installing at their own facilities to transmit large batches of check images to trading partners for settlement.
But smaller banks do not have the same volume of checks and may not want to install the software on their systems. The new product, Gateway DTA, is housed on the Clearing House's own computers, which would make it more economical for smaller regional and community banks to use the Clearing House's still-in-development check image exchange network.
"The goal has always been to have an open system," said Susan Long, a senior vice president at the Clearing House and the head of its image exchange initiative. "We are not a big-bank solution. We're owned by big banks, but we want to be open to everyone."
The software, developed by VectorSGI of Addison, Tex., has already been installed on the Clearing House's systems, and is operated by its Small Value Payments Co./Electronic Clearing Services division. That testing should be complete by the first quarter, but it could take some time after that before SVPCo actually brings any smaller banks online, Ms. Long said.
She said the first priority is to bring up the image-exchange network with the large banks that are already involved in the project. "We have to get our owners up and running, because that's where the critical mass is," she said.
The Clearing House, the successor to the New York Clearing House, did a restructuring in June. It is owned by 19 large and midsize banks. Ms. Long said the group accounts for 60% of the nation's check-exchange volume.
SVPCo has 17 DTA systems deployed at large commercial banks and the Federal Reserve, and 10 more being installed, Ms. Long said. She said the goal is to have the 19 owners connected and operating on the new system by the end of 2005.
So far, however, only two institutions - KeyCorp of Cleveland and Bank One Corp. - have successfully settled transactions using check image exchange over the SVPCo system. Bank One was acquired in July by J.P. Morgan Chase & Co.
Ron Schultz, the development manager at VectorSGI, said that when SVPCo does open the gateway to smaller banks, they will have access to tracking and auditing features of the network, and will be able to settle the payments through the Clearing House.
"It has all the same capabilities, and actually a few more, than a standard DTA has," Mr. Schultz said in an interview. For example, the gateway version could allow a bank to build a single transmission file (known as an X9.37 file) with different subsections for each trading partners, which the gateway would break apart and retransmit to each of the different banks. By contrast, a big bank with large check exchange volumes would have to create numerous X9.37 files, one for each trading partner. This should be more economical for smaller banks, Mr. Schultz said.
Ms. Long said the gateway could also be accessed over an Internet connection, while users of the standard DTA must have dedicated telecommunications connections to the SVPCo network.
A competitor applauded the progress.
"They're moving forward and we couldn't be happier about it," said Mark Craig, the general manager of CheckClear LLC of Oklahoma City, the operator of the Endpoint Exchange Network. Mr. Craig said in an interview Friday that his company - a unit of Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp. - has 3,254 smaller institutions on line and clearing check images electronically.
But the absence of big banks has limited the opportunities for Endpoint, he said. "Until they get their banks online, there's no one for me to trade with."
A consultant cautioned that despite the progress on the image issues, individual banks must come up with their own approach to the exchange of check images.
"Banks will still need to figure out how the SVPCo offering will work as part of an overall image strategy," said Terence Roche, a principal at Cornerstone Advisors Inc. of Scottsdale, Ariz., in an interview. "This is a facilitator for one piece of it, but we're in an area that is still so undefined, it can still go in a lot of directions."
