When Comerica Inc. merged with Detroit rival Manufacturers National Corp. in 1992, the goal of the combined banking companies was to carve out $145 million in expenses, much of it from the back office.
While that aim was achieved, executives admit it took a little longer to get there than they had hoped.
But one pleasant result of the consolidation, says Comerica, is an expansion of its proof-of-deposit imaging system that has meant big savings and greater efficiency.
Now, on a peak day, $32 billion-asset Comerica will process 1.3 million items with imaging technology, among the highest volumes in the industry.
And Tom Mines, senior vice president, said in 1995, the first full year using the technology throughout its Michigan bank, Comerica will improve operating efficiency by at least 14%.
Over the last 18 months, Comerica has been able to cut the number of proof operators by two-thirds, or by more than 130 people. The bank has also closed eight proof-of-deposit centers. The system has also enabled Comerica to send imaged statements to 100,000 account holders, a number expected to double in 1995.
The projected 14% improvement in efficiency also factors in the cost of a new disaster recovery "hot site" - apparently the first in the industry to be fully imaged - that the bank expects to be ready early this year.
For years now, bankers and industry observers have talked about the promise of imaging, yet the number of banks using image proof-of-deposit systems has advanced more slowly than early predictions.
William V. Toner, a technology strategist at J.D. Carreker & Associates' Philadelphia office, noted that imaging becomes more attractive to banks as their existing systems wear out. That's because the difference between replacing a conventional system and buying a new imaging system is not that great. But the benefits are not so clear if a bank already has a functional system with enough capacity, he said.
International Business Machines Corp. has been a visible player in proof of deposit systems, along with Unisys Corp. Yet the IBM technology was for several years beset by delays. Last year, in a big boost to the computer giant, BankAmerica Corp., the largest check processor in the country, announced that it was moving rapidly to expand the IBM proof-of- deposit system throughout its lead bank, Bank of America.
For its part, Comerica was an early entrant into imaging, making the decision to deploy the Unisys system in late 1989. "Our original motivation was efficiency oriented," said Mr. Mines. "At the time, it was somewhat an act of faith because it was a brand new technology. No one else was using it."
Comerica, Signet Banking Corp., Huntington Bancshares, and Barnett Banks Inc. were the first banks to use the Unisys system.
The initial hardware - the cameras that attach to the reader-sorters to capture images - arrived at Comerica in April 1990. Five months later the first applications arrived, and the system was in production by April 1991.
"Image processing is a major reengineering process for a bank," said Mr. Mines. "In a conventional proof environment you have a much more decentralized operation with a large number of proof machines and proof operators scattered (around) a number of geographic locations. And you have a fair amount of flexibility in terms of forms, in terms of timeliness of receipt of work from branch operations."
Image technology, in contrast, requires a greater level of cooperation with the various branches, said Mr. Mines. With only one proof center, the logistics of transportation take on greater importance.
"The task is to make sure that the transactions are presented to the sorter operators in the right sequence: credit before debits, get all the paper clips and rubber bands out of it so the work can feed through the sorters at the optimal rate."
Comerica's sorters, equipped with character recognition technology, are able to read about 40% of the items. "When that image is captured, images that are read are just funneled through your proof system. There is no manual handling whatsoever," said Mr. Mines.
In addition, the new technology doubled productivity of processing checks the machine can't read.
"As the items are going through a sorter, it is immediately displaying the images at the amount entry workstations," said Ed Higgins, the vice president in charge of the first shift. "With the old proof function they could process about 1,200 items per hour. With the amount entry function - where instead of encoding the items, operators are keying the images as they are displayed across the screen - they can do it at a rate of 2,400 items per hour."
The transition to imaging, however, was not without challenges. "We found tellers were preparing work and packaging that incorrectly. And it created a huge problem in terms of image processing with debits and credits being out of order or tickets being switched," said Mary Ellen Baker, first vice president and group manager. "So we had to form partnerships with the branches and transportation in order to make sure they understood what the ramifications of poor quality work did to our out-of-balance rate."
Ms. Baker said the percentage of transactions that are sent to the image balancing area is a key sign of how mixed up the work is. That percentage has fallen to 13%, she said, and should continue to drop a couple of points.
And the balancing function itself, said Ms. Baker, is one of the most useful features of the system. "There is a fair amount of intelligence that actually assists the balancers in identifying the cause of the out-of- balance condition," she said. The cause of "roughly 40% of all out-of- balance transactions are identified by the system."
But perhaps the biggest challenge Comerica encountered was doubling its item-processing volume following its merger with Manufacturers.
Don McKenzie, vice president, transaction processing technology, recalled that when the merger was announced in October 1991, the department was told that Comerica had to convert the rest of its operationg to image by the following January or February so that it could begin to prepare to take on Manufacturers' volume.
While Comerica managed to meet that goal, Mr. McKenzie said "it was a tense situation."
Over the next two years, Comerica prepared to convert Manufacturers work load to image proof of deposit. The bank moved its item processing operation from its own center into an addition on the former Manufacturers check processing facility in Livonia, a Detroit suburb. At the same time, it moved Manufacturers' mainframe to Comerica's principal operations center in Auburn Hills, another suburb.
Over several weeks in the spring of last year, Comerica closed down the remaining proof centers.
Once it was processing checks with imaging technology, Comerica was faced with the issue of what to do if disaster struck.
"That technology required skilled operators to handle that equipment," said Mr. Mines, noting that the bank's item processing staff in the Detroit area was no longer large enough to handle the volume. "And when we looked around for disaster recovery alternatives, we couldn't find one in our area that met our needs," he added.
"So we decided to create our own hot site because we had the space available" in the Auburn Hills building. "This is a substantial investment."
In the event of a disaster before the hot site opens, checks will be processed at proof centers used by out-of-state affiliates, which do not now use the technology.
Comerica is now looking to fine-tune its check processing operation.
"We've been focusing on benchmarking in order to tell us where we should be," said Ms. Baker. "We are gathering data from other image financial institutions and we're using approximately 12 (of) what we call 'critical success factors."
Comerica is also beginning to explore other ways to use imaging. "We are studying a number of opportunities in the image product area," said Mr. Mines. "Some complements to our check processing business. Some complement to our lockbox business."
As imaging becomes more prevalent in coming years, he added, Comerica may be able to generate income from its disaster recovery site by marketing its services to other banks.
"I am extremely pleased we made the decision" to move to image, said Mr. Mines. "Everything I'm seeing in the marketplace says that this is the technology that every bank will be using."