On paper, the idea of forming third-party service bureaus to deliver image-based check processing looks solid. Banks that are too small or too wary to experiment with imaging can pay a service provider to do it for them, allowing the bank to compete with its bigger competitors and stay abreast of technology.

The service provider absorbs the steep start-up costs and learning curve associated with image technology, and reaps profits as other banks clamor for its service.

A perfect win-win situation, right? Not exactly.

The reality is that only a handful of vendors offer imaging-based item processing products, such as checking statements that include images rather than the actual checks. There have been few takers to date.

Limit on Benefits

What's more, the limited number of production-ready item processing systems using image technology has hampered the move to paperless processing.

"Until systems which offer image capability from proof of deposit become available, the touted benefits of imaging are not there today," said Dan Talbott, national back-office product manager at Electronic Data Systems Corp.

All the vendors of major domestic item processing systems - Banctec Inc., IBM, NCR, and

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Unisys - have had such systems under development for the past several years. These systems would use handwriting recognition and other cutting-edge technologies to "read" each check and capture and forward the pertinent information, while storing an image of the entire check.

But the complexity of image-based item processing has kept it in the lab and out of the back office much longer than originally expected.

Pace Slower than Expected

Mr. Talbott expects one of the three vendors to have a full implementation for sale by the end of the year.

"Things have gone more slowly than we might have predicted in 1990," said Ned Miltko, a senior vice president at Littlewood, Shain & Co., a consultant and software vendor based in Exton, Pa.

Most attention is focused on image-based statement rendering, which was pioneered by American Express in its monthly card account statements nearly five years ago.

"There is a lot of behind-the-scenes positioning by the service bureaus where imaging is involved," said Mr. Miltko. The best-prepared "will be able to leverage the most cost efficiencies out of the business."

At more than $1.5 million for the hardware and image-capture technology, "it is expensive to get into," added Stephanie Berger, business development manager at National, a Woodbury, N.Y.-based provider of item processing and other back office services.

National began offering image-based checking statements to banks when it introduced its Image Tec service in December, 1991. Ms. Berger said the service offers benefits in three areas.

"From an operations standpoint, it reduces postage and handling costs for the monthly statement. The bank can use the service to position itself in its marketing efforts as a leading-edge institution. And for the consumer, image-based statements are much easier to reconcile and store," she said.

Ms. Berger said Nationar receives more calls about Image Tec than any other product it offers. Two banks are using the service, with another still in negotiation.

Soon after Nationar's introduction of Image Tec other service providers responded with statement-rendering products of their own, but have found few clients.

"We have a production-ready image-statement product offering," said EDS' Mr. Talbott, but so far no customers.

One bank that has become an early adaptor of Nationar's Image Tec service is the $720 million-asset Savings Bank of Manchester, Conn., which began delivering image-based statements at no charge to its 5,000 premium checking account customers in May.

The mutual savings bank began offering the service partially in response to similar offerings from its much larger competitors, Fleet Financial Group and BayBanks Inc. The image-based service replaced the Manchester's former statement rendering service, where customers received only their accountstatement - and no canceled Vchecks - every month. V

Link Has Been Effective

The transition to the new service has been smooth, according to Dale Lynch, vice president of data processing at the Manchester.

"We've had to make very few changes," said Mr. Lynch. "Most of the fine-tuning on our part has had more to do with bulk filing issues, rather than the image processing portion of the service."

Mr. Hellauer is a technology writer based in Milford, Conn.

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