Wachovia Corp. - one of the more proactive banks in the automated clearing house world - said Monday it will outsource its retail lockbox processing to Remitco LLC, a First Data Corp. subsidiary.
The deal could be a sign that the move toward paperless bill payments is driving a wedge between the banks' desire to own the transactions and their need to do the work. Wachovia is also sending a strong signal about what banks mean when they talk about the importance of "owning" payments.
Remitco will handle all the retail lockbox customer processing tasks, but not the customer management tasks.
The distinction is common in credit card processing. One by one, banks have outsourced the back-office tasks to First Data and other companies, usually while keeping the customer relationship part of the business to themselves.
The Wachovia deal may be a sign that lockbox processing will follow a similar path.
The symbolism is particularly potent because Wachovia was the fourth-largest originator of ACH transactions in 2002. It is also a member of the steering committee of Nacha's Council for Electronic Billing and Payment.
Wachovia says the deal will give its customers access to First Data's Web-based image archive service, plus check imaging and enhancements to the accounts receivable conversion process.
Michael Daley, a senior vice president and the manager of Wachovia's treasury services product solutions, said these technologies, which the bank did not previously have, will advance the Charlotte company's capabilities. "We pick up some added feature functionality that Remitco had."
The deal with Remitco complements Wachovia's electronic lockbox service, which will remain in-house, Mr. Daley said.
Though Wachovia did not say how much Remitco would pay, Wachovia has already turned over five of its 11 retail lockbox locations to First Data, which also has processing centers in New York, Los Angeles, and Columbus, Ga. Wachovia's remaining six locations will be shuttered.
Other banks, including PNC Financial Services Group Inc. of Pittsburgh, have outsourced to Remitco, but First Data says Wachovia is the first to also give physical plants to facilitate the lockbox operations.
Joe Proto, Remitco's president, said it will start handling the remittances for more than 100 treasury services clients from Wachovia. As of Feb. 18, Remitco had begun taking over Wachovia's facility in Los Angeles, the only city where both companies have facilities. "We've decided to consolidate our Los Angeles operation into theirs," Mr. Proto said. "Our folks will move over to Wachovia's location."
At the end of an expected yearlong consolidation, Remitco will operate seven retail lockbox processing locations, and Wachovia will retain only its wholesale lockbox services, which were not affected by the transaction.
Mr. Proto called the arrangement a reflection of larger trends. "Over the past few years technology has changed high-volume payment processing and check clearing services," he said, and more and more paper-based services will become electronic processes.
Gwenn Bezard, a senior analyst at the Boston technology research house Celent Communications LLC, said though this is not the first deal of its nature, seeing the nation's second-largest lockbox provider make this move could prompt others to follow. "That's a big deal. It's something everyone is going to look at, if Wachovia is moving in that direction."
But by outsourcing this service entirely, and even closing more than half of its lockbox processing locations, Wachovia is sending a message that it is shifting its focus from check processing to paperless bill payment, Mr. Bezard said.
"Today, besides the trend to image processing, there's a trend to declining check processing," he said. While check imaging is advancing the way checks are processed, check services are diminishing, because banks are encouraging customers to embrace paperless payment methods.
Mr. Bezard predicted that this trend toward paperless transactions will benefit third-party lockbox providers like Remitco by driving more business to their doors as the main players commit to advancing the services they provide through their Web sites.
And the transition may help change the way consumers pay for things. "Banks are trying to cannibalize check volumes," Mr. Bezard said. Check imaging is not the only weapon banks have against paper. "At the end of the day banks are going to keep focusing on online bill payments."
