Anticipating a day when banks will routinely handle checks in the form of digital images, the Federal Reserve banks have completed a major overhaul of FedImage Services, giving a nationwide reach to the year-old image capture and archive offering.
The upgrade, which was finished in late April, is expected to be announced today. The changes makes it much easier for the 900 financial institutions that use the service to retrieve check images quickly, in any format, and deliver them to their customers, the Fed said.
Moreover, three Fed districts that had not offered the service - those based in Dallas, San Francisco, and St. Louis - have begun offering it. Also, the system has been made interoperable among Fed districts, so banks will no longer have to approach each district bank individually to retrieve check images and seek other FedImage services.
The changes lay the groundwork for interbank check image exchange, which has not started happening yet but is expected to become the standard processing vehicle under the Check Clearing for the 21st Century Act. The measure passed a House Financial Services subcommittee on Wednesday and is widely expected to become law this year. (See related story on this page.)
"Before, we had very limited delivery capability, very limited transmission capability, and only a couple of the archives had any type of access capability," said Fred Herr, the senior vice president at the Federal Reserve Bank of Atlanta who is overseeing FedImage Services, in a telephone interview Thursday.
Under the old FedImage archive system, a bank that wanted to retrieve an image would have to call the Federal Reserve Bank that held it, and that bank "would have to go in and find it and create a medium to ship it to you," Mr. Herr said. Under the new system, which is fully integrated among Fed banks, each customer bank can "do that itself without any interaction with the Fed."
In the past, images were mainly conveyed to customer banks via digital linear tape, but now they can be delivered however the customer wants - for example, by CD-ROM, over the Web, or through a super-fast T3 connection. Customers can still choose from a menu of services, letting the Fed handle archiving alone or capture images as well, and now they can also request the frequency of image delivery - instantaneous, daily, or weekly.
Wells Fargo & Co., for example, uses FedImage to store images of its wholesale clients' checks but handles image capture for all its customers in-house. Kris Chester, a vice president and group product manager for disbursement services at Wells Fargo Bank, said FedImage has enabled it to deliver positive pay exception items with images to its treasury customers on the day of presentment.
"Our customers benefit from this service by earlier detection of fraudulent items," she said.
Ms. Chester, who is based in Dallas, said that the bank uses the service to repair all encoding errors before they reach the wholesale customers, and that customers can then make decisions about their positive pay exception items before they are posted to their accounts.
As for the recent service upgrades, "I would say the major benefit is a consistent standard process, along with the standardization of the check platform at the various Feds," she said. "It ensures that we get consistent product, consistent services," from all the Fed banks Wells deals with.
Most of FedImage Services' customers are much smaller banks with fewer needs to reach across Fed district borders. Among them is First National Bank of McConnelsville, a $76 million-asset bank in rural southeastern Ohio, which receives check images in a Web file every morning at 8 from the Federal Reserve Bank of Columbus, Ohio, and downloads and sorts them within an hour.
The bank used to receive checks by courier about noon, then image and sort them itself, an all-afternoon process. Nowadays "we're out of the bank at about 5:30, everything's processed for the whole day, and we didn't have to spend a lot of money to do it," said Tim Scholl, the bank's chief financial officer and an executive vice president.
"Eventually we will probably be transmitting images back to them of checks written against other banks," Mr. Scholl said. "I think the whole idea is that checks will ultimately clear electronically."
Mr. Scholl said the Fed's ongoing systemic shift from a Unisys Corp. platform to one from International Business Machines Corp. will "put all the offices on a common platform, so that it prepares them for future phases of the Check Truncation Act," now known as Check 21.
Exchanging images among remains a central goal, and both FedImage and the second dominant archive, Viewpointe Archive Services LLC, are trying to make sure that their technology is ready for the day the legislation takes effect.
Viewpointe, which was formed by J.P. Morgan Chase & Co., Bank of America Corp., and IBM, courts the 50 largest banks, and counts 10 customers, the most recent of which is Fiserv Inc., which processes checks for about 1,600 small and medium-size banks.
About half of Fiserv's banks are image-enabled, said John Lettko, the chief executive officer of Viewpointe.
"Much of the Fed technology is very similar to our technology," Mr. Lettko said Thursday. He said the enhancements and centralization efforts at FedImage, which were described to him by telephone, sounded similar to what Viewpointe already offers.
"We view it all very positively," he said. "Anything that moves the ball forward in getting everybody to play in check image is a good thing for Viewpointe."
Though technically a rival service, FedImage was "at the table" during the image exchange pilot that Viewpointe's founding banks conducted, and the two services are working collaboratively on industry groups that want to promote image exchange.
"We've taken a very focused approach toward making sure that all Viewpointe banks can fully exchange images by the time it's legal to do so," Mr. Lettko said.
It probably will not be long after that that Viewpointe and FedImage customers can also swap images, as executives describe it.
According to Global Concepts Inc., the Atlanta payments system consulting and research firm, 90% of check volumes at the largest banks will be committed to image archives by 2005.
"The fact is that image is becoming pervasive - it's the way that checks are done in this country now," said Steve Ledford, the president of Global Concepts.
"Everybody expects that they will be dealing with checks on the basis of image in the future," he added. "It's good to have a variety of providers of this kind of service."
