Recognizing that storing check images has become a commodity service, the Federal Reserve banks are preparing to transfer their archive operations to Viewpointe LLC.
The Fed said that handing off its archive to Viewpointe, in a deal that was expected to be announced today, is the next logical step in its continuing effort to pare its check-processing service.
Viewpointe said the Fed's decision solidifies its position as a "national, trusted archive," and observers said the agreement could prompt other banks with in-house archives to reconsider their image strategy.
"Archive is a commodity," Diane Scott, the president of Viewpointe's emerging business unit, said in an interview Wednesday. "It's all about the efficiency."
Nancy Atkinson, a senior analyst at the research and advisory firm Aite Group LLC in Boston, called the agreement a "market-changing announcement" and said that she expects Viewpointe to become the repository of record for nearly all U.S. check images.
"Clearly, the Fed has determined that image storage is a volume game, and Viewpointe has the volumes to be more efficient," she wrote in an e-mail. "As Viewpointe builds significant volumes of images, the factors for maintaining an individual archive will become more cost-prohibitive."
Viewpointe, a New York operation owned by five large banks and International Business Machines Corp., has estimated that its systems store about 70% of the checks written in the United States and that its archive currently has about 130 billion images. It has 11 banks as archive clients, including its owners, all among the biggest U.S. financial companies.
The Fed's archive, which serves more than 1,000 banks and credit unions, would add about 10 billion images.
Fred Herr, a senior vice president in the Federal Reserve System's retail payments office, said the transition would go largely unnoticed by the companies that use the FedImage archive. "Our customers will still interface with our networks, our help desk, our operations people," he said.
The Fed was in discussions with Viewpointe for more than a year, Herr said. The Fed's systems were due for an upgrading, but with check volume declining, he said, moving to the Viewpointe archive made more sense.
The central bank already has a connection to Viewpointe, so the reserve banks will be able to begin sending images of new checks to the archive perhaps as soon as the third quarter, Herr said.
Moving the stored images from the FedImage archive will take up to 18 months, he said.
David Potterson, the vice president of global research at the Financial Insights unit of International Data Group Inc., said the Fed's decision could prompt others to consider using the shared repository rather than managing their own.
"It does give you the Federal Reserve's seal of approval for storage and archive," Potterson said.
He also hypothesized that Viewpointe could use its position to develop other data storage services, such as an archive for e-mail or other records, or for data backup and disaster-recovery services.
Viewpointe has been promoting wider uses of its services. It announced an agreement with Fiserv Inc. in January 2008 to provide archive services for the Brookfield, Wis., vendor, the nation's largest nonbank check processor.
And when a group of bankers floated the idea in 2006 of clearing checks electronically across the automated clearing house network, through a group called the Check ACH Coalition, Viewpointe offered to act as a national repository where institutions could retrieve their images.
More recently, Viewpointe has expanded into check settlement and ACH, through its purchase in December of PaymentsNation, a Dallas provider of those services.
"There's a great deal of opportunity" to offer new services, Scott said. "We've always said the archive is the foundation for expanding into many different areas."
At the same time, the Fed has been pulling back from checks.
The central bank, which once ran 45 check-processing centers, said in November that by the end of 2009 it expects to have consolidated its item-processing in a pair of centers, one for handling images, in Atlanta, and the other for paper checks and adjustments, in Cleveland.
Herr said the movement away from paper-check processing continues to accelerate.
"We're pretty sure that by the end of the year we're going to be at 98% on the forward electronic receipt," he said. "For paper processing, there's not going to be much left at that point."