TO KEEP FROM BEING buried by an avalanche of checks, Star Banc Corp. joined the National Clearinghouse Association.
Since January of 1993, the Cincinnati-based banking company has used this low-technology approach to achieve efficiencies, allowing it to stay on top of its check-clearing needs without adding expensive technology and human resources.
Initially, the $7.8 billion-as-set bank predicted that it would save approximately $25,000 per year by using the National Clearinghouse option. However, the bank has happily boosted its projection. It now expects to save more than $160,000 in 1994 alone, while dramatically increasing the number of checks it clears.
"We joined the National Clearinghouse Association with the premise that it would expand and open clearing opportunities in many regions and we would be able to lower the costs of clearing checks," said Brian Dailey, vice president and manager of check processing.
"We also saw it as way to expand our business while lowering our costs and not expanding our operation.
"We have not changed our operation from what we did before we joined the association, but we have been able to increase efficiency," said Mr. Dailey.
"By utilizing the National Clearinghouse, we have lowered the cost of clearing significantly."
The savings come from the bank's ability to clear the items through one location instead of going through the Federal Reserve system, and correspondent banks, which often charge higher fees.
Clearing house costs are .0085 cents per item, which has enabled Star to save more than a penny per item cleared while not incurring new costs when volume increases.
"The cost of the National Clearinghouse is much lower than the Federal Reserve Bank," said Mr. Dailey.
Overall costs are also reduced, because Star received a sorting and balance credit from the clearing house group for all checks the bank receives from the group's other members.
The bank currently clears an average of 1.2 million items a month.
The bank expects savings of more than $160,000 in 1994, des pite dramatically increasing the amount of checks cleared
"The clearing house also saves us a lot of time when it comes to funds management," said Mr. Dailey.
"Instead of having our people checking to make sure our cash letters clear from 45 different locations as well as checking for float and such, they only have to look at one file for the information."
Currently the association embraces 38 banking companies whose combined holdings are spread throughout the 12 Federal Reserve districts. Member banks enter cash letter data into a real-time system, which is then updated once other members receive the information.
Once the information is received on both ends, settlement can take place.
Deborah Williams, a consultant at The Tower Group in Wellesley, Mass., said the size and scope of a bank's operation will determine how profitable it will be to be a member of the clearing house.
"Many banks do not want to give up the ability to charge whatever they want for clearing fees," she said.
"The clearing house forces all members to adhere to standards, which means services may be cheaper but also may cause a loss of revenue."
"In most cases, using a clearing house can save time and effort," she continued.
Before Star joined the clearing house group, 40% of its volume was sent through the Federal Reserve system, 36% went to the local clearing house, and the remaining 24% to correspondent banks.
Today the mix has changed: 34% of the checks are cleared through the local clearing house, 31% through the Fed, 22% through correspondent banks, and 13% through the National Clearinghouse.
The association acts as a supplement to Star's operation and functions as a local clearing house - but on a national level.
One of the advantages to using the association is that in some cases a correspondent bank is in a city with a Natioanl Clearinghouse bank and has been forced to lower its prices in order to compete.
"We have been able to stay with correspondent banks in some locations instead of going with the National Clearinghouse because the correspondent bank has lowered its prices while also providing other services," said Mr. Dailey.
"We are able to send the same amount of volume with the same institutions at a much lower cost because of the presence of the National Clearinghouse option.
"These institutions know that if they do not lower the prices, we may move volume to NCHA," he continued.
"Not only is the National Clearinghouse very helpful in the low-cost clearing of checks and settlement but adjustments are handled much more quickly than through non-clearing house banks," said Mr. Dailey.
"The problems are better resolved because we are all member banks, we all work under the same guidelines, and are members of the same team."
In some cases, Star has been able to combine many of the items for a single city into one cash letter by clearing through the association, because a member bank is required to clear items for the area.
"At some point we may be able to combine all of the items for a single city on one cash letter instead of sending two or three to the particular city," said Mr. Dailey.
"It will allow us to put it through on a single transaction through the National Clearinghouse."
Belonging to the association has also enabled Star to better manage its resources.
By reducing the number of cash letters the bank produces, the operation can run more efficiently.
"The fewer number of cash letters we need to send, the fewer number of people we need to work on that aspect of the operation and they can concentrate on other areas," said Mr. Dailey.
"Operationally, belonging to the clearing house has proven very cost-effective."
Over the last year, the volume has increased by 13.5% without adding staff.
"One of the things that the National Clearinghouse has allowed us to do because we are able to clear checks at a much lower cost, is the ability to make bids to corporate customers at rates much lower then before," said Mr. Dailey.
"It has made us a much stronger competitor in this market.
"We have been able to pass the savings from the clearing cost along to our customers while also being able to solicit new business more competitively than before," he continued.
Mr. Dailey said the more business Star generates, the more efficient the operation becomes. "The more checks we receive from corporate customers the lower my cost becomes on all of the items," he said. "The lower the cost is out the door means the more business we can go after."