The stock transfer business has not exactly been a cash cow as far as banks are concerned, but Chemical Banking Corp.'s Geoserve unit believes it has found the answer to fattening profit margins by removing both labor and paper from the process.

Three years ago, Geoserve's management realized the stock transfer business was maturing and noticed that many of the big players where exiting because the industry was becoming cost-prohibitive.

"When we saw this happening, we came up with a game plan which called for the reengineering of the entire workflow of our operations" said Nicholas Papanikolaw, senior vice president of corporate trust. "We have since changed the way we did business by adding technology and changing the front-end and back-end processes."

One of the major goals of the reengineering effort was to get a look at every single task performed daily and determine a way to make the overall process more efficient.

"The biggest missing ingredient of our operation was that we were not able to look at the paper [securities] we were processing electronically," said Mr. Papanikolaw. "Our intent after reengineering the flow of the organization was to take the security and immobilize it at the point of entry."

Early last year, Mr. Papanikolaw came up with idea of using imaging to take a digital picture of each stock certificate as well as the accompanying paperwork, to process the transaction electronically instead of moving the paper back and forth.

"Last September, we developed the scheme and the vision and we pitched it" to Geoserve head Richard Matteis, said Mr. Papanikolaw. "We got approval for the system later in the month and went live with it in April of 1994."

Chemical uses a proprietary system with Kodak scanners for the operation.

Using imaging technology for the stock transfer business makes a lot of sense, because the application is so paper intensive, said Robert Tetenbaum, an executive vice president of First Manhattan Consulting Group in New York.

"Although the jury is still out, because the technology is still being proven, it looks like it will be very successful," said Mr. Tetenbaum. "Chemical is taking advantage of the technology and using it for multiple functions which win lead to reduced errors and improved efficiencies of the existing and post-merger operation."

The new system will get a further test as Chemical announced earlier this year that it would acquire the stock transfer unit of Mellon Bank Corp.

Mr. Papanikolaw said Chemical's addition of the Mellon unit, the fifth largest in the industry, will create the largest stock transfer firm in the country.

"The merger will capitalize on maximizing the technologies of both organizations to increase profits with the rest of organization," he said. "This will allow us to increase the paybacks for both organizations from our existing systems."

The merger calls for the new unit to use Mellon's record keeping system in conjunction with Chemical's imaging and PC-based systems.

The merger should be completed with all of the systems up and running by Jan. 1, Mr. Papanikolaw said.

The basic concept behind the use of imaging in the operation is that when a certificate comes into the office, a clerk mobilizes it, places it and all of the paperwork into an imaging system and moves the information to a workstation for processing.

This process allows us to get rid of paper flow," said D'Arcy Leclair, senior vice president. "We have changed the process of the operation to make it totally automated with pushing paper from one desk to the next."

In the old process, the stock certificates came into the mail room, and processing was not completed until they had passed through seven departments until completion. Now the information is received in the mail room and scanned immediately.

The image is then sent through an automatic work flow coordinator that routes the certificates to workstations for processing.

"We have developed a system which provides all of the information at one station to complete the transaction and print a new certificate," said Mr. Papanikolaw. Chemical has created the imaging completely in-house and has spent more than $1 million to bring the system up. The unit handles approximately 10,000 images a day through the system.

"We have been able to take vision, marry it to technology, and - in less than six months - make it a reality," said Mr. Papanikolaw. "This project is going to pay for itself in less than a year, with results that are well worth the expenditure."

The bank designed the technology around its existing systems in order to ensure easy integration and ensure that all but one aspect of the function stayed the same. Instead of moving paper, it moves images.

"Everything is the same as it was before," said Mr. Papanikolaw. "All we did was move an image processing system in front of our operation, so that we can take the information and move it throughout our entire operation."

The imaged file is moved out to a workstation with everything it needs to process the transactions and get the information ready for printing.

"The staff can see the front and back of the certificates and all of the documentation that accompanies it when it comes to the workstation," said Mr. Papanikolaw. "The information is taken, encoded, entered into the record keeping system and a certificate is printed later that evening."

Currently, all of the stock transfers are being performed through the imaging system.

However, in cases where an image is unclear or the paperwork is incomplete, the transaction is handled manually.

"Before we started using imaging, the operators used to do a lot of mundane processing; this system has made them more in tune with what is going on," said Mr. Papanikolaw. "There has been a commitment by the staff to accept ownership of the process and they are a lot happier."

Through the use of imaging, Chemical has been able to increase the productivity of die operation by 33%. On average, the bank processes approximately 2,000 certificate transactions a day for more than 1,000 companies. The unit services more than 6.5 million shareholders.

"One biggest satisfactions from bringing a system like this on board is the reaction from the industry when they see how we are not using any paper," said he continued. "It is truly wonderful to see a project like this from start to finish with success. This has allowed us to bring lots of value to the shareholders of Chemical Bank."

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