Bankers often refer to their check processing operations as factories, and the image fits.

It's a noisy, complex business that involves daily check deliveries from branches, hungry reader-sorters, and legions of encoders that stamp the checks whizzing by.

Imagine having to build such an operation from scratch.

That's precisely the challenge many thrifts face in their quest to look more like full-service retail banks.

Though thrifts have been permitted to offer checking accounts for 15 years, their push to diversify beyond the bread-and-butter mix of mortgage lending and savings accounts has only gathered steam since the late 1980s.

Thrifts pursuing this strategy see a range of issues to deal with - developing systems and procedures to handle daily check volume, redesigning branches not built for handling large numbers of transactions, training employees to sell checking accounts, and safeguarding against fraud.

"This was an entirely new venture for us," said Jane Wood, first vice president of branch services at Great Western Financial Corp. And it was one for which the company didn't have a historical foundation either from a marketing or operational perspective, she said.

The Chatsworth, Calif.-based thrift launched a major push to diversify its product line in 1989, though it first began offering checking accounts in 1981.

From the start, $44 billion-asset Great Western recognized that it would need the assistance of an outsourcer to handle item processing.

"We weren't equipped in terms of actual equipment or technology to do item processing," said Ms. Wood. "And it would have been not efficient for us to try to do that ourselves."

Outsourcing is the route chosen by many thrifts, an approach that makes a lot of sense, said Lawrence A. Willis, executive vice president at First Manhattan Consulting Group.

"You don't have the up-front capital investment to create your own infrastructure," he said. "And two, you can leverage off the scale infrastructure that is in place to support multiple clients."

But some thrifts, when they achieve scale, choose to bring item processing in-house.

Like Great Western, Charter One Financial Corp., Cleveland, had offered checking accounts since the early 1980s.

But Mark Grossi, executive vice president of retail banking, cited a desire for greater control over operations when the company brought check processing in-house five years ago.

Great Western, which renewed its contract with Electronic Data Systems Corp. two years ago, has no such plan. Operations are running so smoothly that the thrift has phased out what it called a checking account center linking its branches with the outsourcer.

The unit, created in 1981, was dedicated to developing and streamlining processes, centralizing administrative tasks so branch employees would have more time to sell, and upgrading technology.

During the 1980s, checking account deposits grew from $83 million to $1.9 billion. Then in 1989, Great Western's shift to diversify began in earnest. Selling more checking accounts - a means to both deepen relationships with customers and gather deposits more cheaply - has been a linchpin of that strategy.

The thrift has had some success. The number of accounts grew from 628,000 in 1989 to 1.6 million today. Balances during the period went from $1.9 billion to $4.6 billion. In April, the thrift processed 23 million items.

That growth was accompanied by continued operational improvements in the back office and branches. An internal review in 1989 found 20 procedures that could be simplified, including the processing of incoming and outgoing mail.

Some 28 reports that had been generated daily were eliminated. During the next two years, two dozen processes were streamlined and three more reporting tasks eliminated.

By 1993, Great Western felt comfortable enough with the improvements to close the checking account center.

With EDS handling the daily drudgery of processing items, Great Western's biggest task has been getting branch employees up to speed on new products and systems.

"We needed to enable our employees to be able to process transactions that checking accounts drive, and still do their sales job as well," said Ms. Wood, the branch chief. "That's been an ongoing challenge and continues to be."

She noted that the expectations of a traditional thrift customer shopping for a certificate of deposit are different from those of a consumer planning to cash a check.

"The CD client is more interested in taking some time to know the people in the branches, to sit down and discuss their options, and make some long- term financial" plan, said Ms. Wood. "The checking account customers, in contrast, are most interested in speed, efficiency, and accuracy - and good customer service."

Great Western's drive to improve its back-office operation was also complicated by a string of acquisitions during the period. Since 1990, the thrift has acquired $14 billion of retail deposits in 12 deals. The branch network grew by 200, to 416.

Great Western is not alone in struggling with this transition. Anat Bird, chief operating officer at Roosevelt Financial Corp., says check processing is the easy part - as at Great Western, the task is handled by EDS. More vexing is serving checking account customers in branches not designed to handle so many transactions.

"The lobby was not built to accommodate traffic," said Ms. Bird. "The brick and mortar becomes obsolete, and there is no room for expansion. Where do you put the people that stand in line? What do you do with the customers that come in the branch?"

To shorten teller lines, the St. Louis-based thrift stepped up staffing during peak times, expanded its call center, and encouraged consumers to use automated teller machines.

Great Western is also taking steps to improve branch efficiency. The bank installed front-end software from Hogan Systems Inc., and Ms. Wood said it further reduces tellers' workload by transferring some bookkeeping tasks to the back office. EDS is also planning to introduce imaging technology at the service bureau that processes checks for the thrift.

"We had a lot going on in the back office operationally in terms of managing the overall growth of our branch network and our company," said Ms. Wood.

While start-up costs were substantial, she added, "we believe that we've had a very satisfactory return on our investment, in that we have been successful in transitioning Great Western from a traditional thrift into a growing consumer bank."

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