growing number utilize check imaging. According to many community bankers, imaging is chock full of benefits, such as cost savings, that better enable them to keep pace with the competition. "This technology is an important competitive edge," says Eli Schmidt, operations vice president at Fairfax, Va.-based Cardinal Financial Corp. Kay Smith, operations vice president at Bend, Ore.-based Cascade Bancorp, says one benefit she noticed after converting to imaging was a saving in postage. "Of course there were big postage savings because you're mailing out a piece of paper with 18 images on it rather than 18 full-size checks," she says. Cascade's imager also cut labor costs and required less hardware, Ms. Smith says, adding that the technology eliminated inefficient manual check handling. "In terms of employee labor savings, you're not physically hand-filing and hand- sorting," she says. "It also did away with the hardware requirements at each branch." Kirk Sandquist, president of Deer Lodge, Mont.-based Peoples Bank, says imaging cut research costs. After the bank went high tech, time-consuming microfilm searches were no longer necessary because searches could be performed by computer. "We've found the system to have a significant impact on our research," he says. "Those savings will grow into the future as you get more and more of your research requests" for imaged checks. Another benefit is that imaging banks do not need space for bulky microfilm archives, says Dewite North, an imaging expert for Washington-based Independent Community Bankers of America. Like other imaging banks, Mr. Sandquist says he realized a substantial saving in postage; he figures the bank cut mailing costs by about $300 per month. Mr. Sandquist has also saved about $12,000 this year in maintenance costs. "Next year should be a little more," he says. But like any new technology, check imaging comes with baggage. The biggest problem Cascade's Ms. Smith encountered was training personnel to use the system. "We actually ended up with 100% turnover in the first six months in our proof staff," she says. "We had some people who were proof operators for a long time, but they had a hard time going from physically having pieces of paper in their hands to the process of viewing them and reading them on the screen." Ms. Smith says she solved the problem by hiring people without experience on older systems. "For those who didn't know any different, it wasn't a problem," she says. Some vendors offer training to bring employees up to speed. Mark Ryan, vice president of client services for Bisys Group Inc., one of the nation's top imaging vendors, says his company offers on-site training or courses at the company's check imaging "university" in Birmingham, Ala. The initial monetary outlay is another headache. Mr. Ryan says a basic system costs about $200,000. The price usually increases as asset size increases, he notes. Cost problems can be compounded by the fact that many financial institutions continue to use old technology, Mr. North says. As a result, high-tech banks often have to maintain dual systems to remain compatible with institutions that have not implemented imaging. "Community banks that are looking for the profit margin are often hesitant to say they want to run a dual system," he says. Perhaps the most difficult problem with imaging systems is the question of legality of imaged checks, Mr. North says. "One of the issues is whether or not an image of a check is going to be acceptable in a court of law because it's an image of the signature as well," he says. As a result, he says, some banks believe that the procedures are not in place to support images as proof of payment, "so there's some hesitancy there." Mr. North notes that many states are considering legislation that would eliminate confusion over the legality of imaged checks. Despite the drawbacks, Mr. North says an ICBA study of its 5,400 member banks showed most customers believe check imaging equals better service. The study showed that "after some initial hand holding, the customers prefer it, because they can store their checks in binder form, instead of a big, bulky envelope full of loose checks, and they realize how quickly they can get copies of checks when they need an additional copy. So, for the most part, we have heard positives" from the banks. Mr. Sandquist noticed that customer approval sometimes cuts across age lines. "I have one customer who tells me it takes him five minutes to balance his check book," he says. "And that means a lot to him, because all the checks are put in numerical order in the statements. And that was an older customer." Mr. North adds that ICBA member banks believe they can serve older customers better because imaging systems are flexible. "If an older customer calls in with a question about a specific image, the processor can blow the check up onto a single piece of paper so that it's five times its normal size and present it to them," he says. Still, some customers dislike imaged checks. According to the ICBA's study, accountants and lawyers are the most vocal critics. "Both know the specifics regarding the laws and judiciary requirements on paper-based checks," Mr. North says. Their complaints have done little to stifle the trend toward check imaging, however. Mr. North of the ICBA says nearly 40% of the association's members use it. "We were fairly surprised that there were that many," he says. "The biggest influx has come over the past two years - our percentages indicated that two years ago, it was 20%." Mr. North adds that the ICBA sees the trend continuing because imaging "is definitely a cost-saving measure for a small bank." Banks might save even more money - and perhaps serve customers better - as imaging moves to cyberspace. In fact, a handful of banks, such as Cascade in Oregon, already enable customers to access checks on-line. The result could be lower postage costs and better customer service, as checks can be retrieved on- line 24 hours a day, seven days a week. Banks reluctant to invest in a new system can still get in on check imaging. Dan Littman, check product manager for the Federal Reserve Bank of Cleveland, says most Fed offices offer outsourced imaging services. "Our advantage is that a lot of the checks are coming through us in the first place," he says. Whichever road a bank chooses, there is a lot to think about before investing in check imaging. But for her part, Cardinal's Ms. Schmidt says she has no qualms about recommending it to her counterparts. "The process has been very smooth," she says, "and we couldn't be more pleased." n This article first appeared on American Banker Online.

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