The Federal Reserve banks are planning to shut down in September 2006 the aging FedLine system that banks use to access the Fed's payments systems.
William Barouski, a senior vice president with the Federal Reserve Bank of Chicago and the FedLine product manager, said Monday that about 8,000 depository institutions will have to convert from the DOS-based FedLine to the Internet version that it introduced in November 2004, FedLine Advantage.
"FedLine is finally going to be retired, after more than two decades of very active use," he said.
About 1,000 banks have already switched to FedLine Advantage, he said, and 900 more are in the process of doing so. Both versions enable banks to access the Fed's payments systems, including Fedwire and FedACH services.
As additional incentive to switch to the newer version, Mr. Barouski said, the Fed plans a "substantial" rate increase in April for banks still using the original FedLine system. He said the official pricing will be announced later this year when the central bank issues its annual pricing update.
The new price could be as much as double the current $200 monthly fee. FedLine Advantage costs $250 per month.
"As we convert more and more banks, the price of the old system, on a per-user basis, will go up," Mr. Barouski said. "To pay for operating both systems, the price of the old system will also have to go up."
Mr. Barouski said it generally takes four to six months for a bank to install and test the new systems, though one completed its entire conversion project in just two months. He stressed that there is more than enough time for every bank to switch before the price increase takes effect, and said that "we are trying to have everyone complete before September 2006, when FedLine ends."
The original FedLine uses dial-up connections to hook into the Fed's systems. It is one of the Fed's oldest access systems and is based on the antiquated DOS technology that was used on some of the earliest personal computers. It has been in use since the 1980s.
The Fed also introduced in 2001 FedLine Web, which provides users with access to fewer of the Fed's payments systems.
FedLine Advantage uses virtual private network technology to access the Fed through an Internet connection or dedicated leased lines. The new system features a more user-friendly interface, better help functions, and better information-reporting capabilities, he said. The FedLine Advantage system costs about $950, and the Fed charges banks a one-time set-up fee of $400.
However, Mr. Barouski conceded that some customers are satisfied with their existing system and have little motivation to switch. "Some banks have told us 'FedLine DOS is all I need, so why do I need to change," he said. "We are trying to motivate conversion."
Larry Tabb, the founder and chief executive of the Westborough, Mass., market research firm Tabb Group, said this issue is common. The improved features have attracted a group of early adopters, especially tech-savvy bankers, he said, but the Fed has a broad "spectrum of clients, with different needs," he said.
"Getting people to convert is always a challenge," he said. "There will always be people who subscribe to the model of 'it's not broken, so why should I fix it?'"
However, Mr. Barouski said the Fed's position is clear. "We can't afford to run two systems."
