The New York Clearing House Association has been asked to act as a settlement agent for a back-office cooperative aimed at reducing badcheck losses, officials connected with the group said.
The request was extended by 11 banks that belong to Electronic Clearing House Organization, or Eccho, a nonprofit consortium set up two years ago to give banks early notification that a check may not clear by transmitting check data electronically in advance of the paper item. Eccho has about 53 members.
The 11 Eccho banks said last week they had formed an advisory group to help develop common technology to route checks and check data. The advisory group includes Barnett Banks Inc., Bank America Corp., Chase Manhattan Corp.; NationsBank Corp.; First Interstate Bancorp; and CoreStates Financial Corp.
Thirteen members of Eccho, including some advisory group members, have agreed to take part in a test of what is being called the Payment Systems network, at reduced cost, in order to establish the business case and procedures for the network.
These pilot banks will test the use of International Business Machines Corp.'s Information Network, as well as courier services from First Tennesse National Corp., through its First Express unit. The latter uses Federal Express and other couriers to transport paper checks around the country.
The use of First Tennessee's check-sorting and trasportation system is similar to an arrangement spearheaded by Huntington Bancshares Inc., called Chexs.
Huntington's Terry Geer, senior vice president of operations administration, said that Chexs and Eccho hope to form an alliance that would enable member banks to choose either clearing arrangement.
New York Clearing House officials were not available for comment by press time.
Electronic Presentment Backed
David Walker, a vice president at J.D. Carreker & Associates, a Dallas-based consultant to Eccho, said the clearing house could provide settlement and accounting services for exchanges made among the banks, similar to services it provides to Chips, the Clearing House International Payments System, and the New York Automated Clearing House system.
Separately, J.D. Carreker unveiled a study showing that electronic check presentment could help banks avoid many of their losses from returned items. In the study, seven Eccho members tracked their return items to see whether they could have been avoided through use of electronic check presentment.
Participants in the study were Bank of Boston Corp.; the Bank of California unit of Mitsubishi Bank Ltd.; the Texas unit of Banc One Corp.; Chase Manhattan Bank; Chemical Banking Corp.; First Interstate of Texas, and Wells Fargo & Co.
Halving the Losses
The seven banks had a total of $22.5 million in returned deposited items. About $10.5 million in total, or $1.5 million per bank, was written off. Of the $1.5 million, each bank could have recovered about $800,000 annually through the use of electronic check presentment, the study found.
According to the study, banks could not have caught the other bad checks through electronic presentment because these were items with invalid endorsements of signatures.