Bankers Trust New York Corp. says a Canadian check clearing and settlement venture it established in January has garnered 70% of the market for "southbound" transactions.
The venture clears checks denominated in U.S. dollars for Canada's largest banks through a processing site in suburban Toronto.
The operation, a division of BT Canada, handles 25,000 items worth $200 million on an average night.
"We've never been a bank known for its lightning strikes," said Alexander P. McKown, vice president at Bankers Trust. "But we went to Canada and in a few months took a market away."
Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Bank of Montreal, and Royal Bank of Canada have agreed to use the Bankers Trust site to settle at least a portion of their U.S.-dollar checks drawn on U.S. banks, said Bankers Trust officials.
Bankers Trust already is a big player in the international check- clearing business. According to bank executives, it holds 38% of the market for international cash letters, clearing nearly 300,000 items daily for overseas correspondents through a site in Totowa, N.J.
"This is our niche," said Donald F. Schule, vice president in the bank's processing subsidiary, Global Processing Services.
For years the group jealously watched an upstate New York rival - Marine Midland Banks Inc. - enjoy a commanding presence in the Canadian market by virtue of geography. It was easier for Toronto-based banks to messenger U.S.-dollar checks to Rochester, N.Y., than to Manhattan.
Time is a critical factor in check clearing for Canadian banks, because national rules there require one-day settlement. And Canadian banks need the assistance of U.S. banks to settle U.S. dollar checks, because they cannot gain access to the Federal Reserve.
The inability to process and settle checks can mean the loss of millions of dollars in float, Bankers Trust executives explained.
The new site is just 20 minutes from Toronto's financial district. That cuts messenger time by three hours and minimizes delays during bad weather, say Bankers Trust officials. Five employees were hired locally to run the site.
"Check processing is a mature product, so you have to figure out how to add value," said Andrew Woelflein, vice president. "It seemed obvious. We wanted to show Canadian bankers that we understood what challenges they face in their market."
The facility and the processing and sorting equipment are leased from a bank, which executives declined to name.
Bankers Trust officials said the venture is only the first phase in its effort to expand its private-label processing business. Already, Global Processing Services handles 30 U.S. banks through its New Jersey facility.
"We are thinking about doing all U.S. dollar clearing for Canada, not just southbound," Mr. McKown said. "And we would like to extend our private labeling in the U.S. Next year will be the big push."