Some banks plan to use imaging to clear and settle checks faster, but for a small Kansas bank, imaging will also mean the end of daily nine-hour drives to Kansas City, Mo.
First National Bank, a $45 million-asset unit of Kansas Bank Corp., is located in Elkhart, a town on the Oklahoma state line, less than 10 miles from the Colorado line, and 418 miles from Kansas City - as far away from the Federal Reserve Bank of Kansas City as you can get and remain in Kansas, according to Joy Elder, First National's vice president.
But First National plans to phase out its daily courier run and begin sending its cash letters to the Kansas City Fed via its item processing outsourcer, Fiserv Inc.
Beginning April 1, First National will stop delivering its cash letter to the Fed by courier, Ms. Elder said. Instead, it will transmit the information to Fiserv's Kansas City data center, which will print out the cash letter and image replacement documents that will act as substitutes for the original checks. Fiserv will then deliver all the paperwork to the Fed.
First National is testing the system now.
"We have the same problem as other banks: getting our cash letters to the Fed," but the distance makes the task particularly challenging for First National, Ms. Elder said.
First National currently closes its books every day at 1 p.m. - right in the middle of the lunch-hour rush - so it can prepare a cash letter that must be delivered to the Fed by midnight to Kansas City.
Since it began outsourcing its item processing to Fiserv, of Brookfield, Wis., in January 2004, First National has been settling on-us payments through the technology company using images. However, First National still sends its transit checks to the Fed via courier.
"It's really an inconvenience, because your tellers are so busy from noon till 2 o'clock," she said.
First National has 10,000 transit items a month that have to be cleared through the Fed, Ms. Elder said. It clears three to four times that many on-us checks, because in the remote community, the check writer and the recipient are often both First National customers, she said.
The Fed is accepting cash letters digitally from a handful of banks through its FedForward service. The central bank can then transmit those items across the country to the Fed location closest to the receiving bank.
For the moment the Fed is printing out the items as IRDs at its receiving location, but it has said that it plans to begin delivering the image files in the near future to banks that are equipped to receive them. That service will be called FedReceipt.
Ms. Elder said she expects First National to eventually deliver its cash letter directly to the Fed electronically. "The IRD thing is going to be an intermediate step. In the long run, we want just to have the images delivered."
Though IRDs are more expensive to process than actual checks, the cost of sending IRDs will be equal to or less than what First National pays now for the courier service, she said.
"It's really hard to get a courier in southwest Kansas - that's why our cutoff is 1 o'clock," she said. In its last contract, First National's courier quoted a price of $1,226 a month, but the bank was able to negotiate a rate of $990. "For a little bank, that's a big expense."
Also, the courier will not make the drive in bad weather, so a First National employee must make the drive, Ms. Elder said.
Imaging will have an immediate effect on First National's operations, she said. "We will … [close the books] our lobby closes at, say, 3:30, which will be very helpful. Lunchtime is our busiest time."
Ted Umhoefer, the senior vice president of product management and industry relations in Fiserv's item processing group, called First National's situation "a good clear business case" for imaging. "The bank is able to save significant costs, increase customer service, and improve internal efficiencies."
