LAS VEGAS - Some payment executives, including some bankers, are voicing skepticism over the value of a converged payment system that would use both image exchange systems and the automated clearing house network to settle payments.
Though many agree that the basic concept makes sense, a key issue appears to be control of the archives where banks store check images. The proposed plan would be most effective with a small number of archives providing images on demand to any financial company that needs them, but banks that have invested in building their own image storage systems are not eager to scrap them in favor of using a centralized one.
James Hicks, a senior vice president at Wachovia Corp. and the executive of its image technology group, said the Charlotte company offers a variety of services to customers that depend on operating its own archive. The fee income from these services would be "jeopardized" by storing its images in a third-party archive, he said.
Storing the images elsewhere and making them available on-demand could interfere with anti-fraud applications and hinder service, Mr. Hicks said. "We've all dreamed that in a perfect world we could do image on demand," he said. "I'm just pessimistic that it will get off the ground."
The concept of a converged payment system was discussed publicly this month at the Payments 2006 conference in San Diego, where it met with strong support.
But unlike the crowd at the Payments show - which is focused on the ACH network - the bankers at the Bank Administration Institute's TransPay conference here last week were from the check-processing end of the business, and were more critical of the plan.
Paul Obermeyer, an executive vice president and the director of operations services at Comerica Inc., said he considers the Detroit company's in-house check archive to be a competitive advantage, and that joining a third-party archive would mean his services would be identical to those offered by any other companies using that archive.
"We believe ourselves to be among the very best," Mr. Obermeyer said. "We don't think we would want to be merely average."
He also said that the technical hurdles of linking financial companies to every archive - which could be necessary to support image on demand industrywide - would make it "practically impossible to implement."
Image exchange has become one of the most rapidly adopted innovations in the history of banking, Mr. Obermeyer said, but the idea of melding image and ACH could "distract the banks that need to make the transition," and prompt some to wait it out for the converged system to become a reality.
Susan Long, a senior vice president at The Clearing House Payments Co. LLC and the head of its image-processing unit, SVPCO Electronic Clearing Services, said banks are reluctant to invest in imaging gear because check volume is in decline, and agreed that the proposed image-ACH system could slow the adoption of image exchange.
The idea behind the converged payment system is that banks that can accept digital check images could convert them into ACH files to settle the payments with banks that cannot. This means that the paying banks would receive ACH files, but not their customers' checks or images of them, yet in some cases must still provide one or the other to customers.
The answer could be an image-on-demand system that would deliver images to any paying bank that asks for them. Viewpointe Archive Services LLC of Charlotte, which operates a massive shared archive, said last week that it expects to have such a system available early next year. Viewpointe, owned by some of the industry's biggest banking companies, says it handles about 70% of the nation's checks.
Still, a significant number of checks are stored in other archives, and Viewpointe said last week that the on-demand system would work best if those other archives were consolidated into a single archive.
However, Ted Umhoefer of Fiserv Inc., the nation's largest third-party check processor, said he sees little reason for his customers to abandon their current archives for a centralized one. "The paying bank is going to say, 'What's in it for me?' "
Mr. Umhoefer, Fiserv's senior vice president of product management and industry relations, said his company has 1,200 banks using the Fiserv archive, and 800 others using its archiving software.
The big banks promoting the converged payment network may "love it, but where's my business case to do it?" he said.
Still, bankers and vendors at the BAI conference agreed that the converged payment concept will probably move forward, because it has powerful backers including Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co., the top three ACH originators. All three are major check-processing banks - Bank of America is No. 1 - and all three store their images in Viewpointe.
Jennifer Lucas, Viewpointe's marketing director, acknowledged that the industry is unlikely to coalesce around a single archive, but said her company will play whatever role its owner banks assign to it in the move towards payments convergence. "We're going to let the banks drive all of this. We're just a vendor at the table. I'm sure there's room for a lot of different people at the table," she said.
International Business Machines Corp. provides Viewpointe's imaging systems, but would not comment for this article.
The image-ACH payment system is also endorsed by the Federal Reserve banks, though Fred Herr, a senior vice president in the Fed's Retail Payments Office, said he does not expect it to rely upon a single archive. The Fed also has a large image archive; Mr. Herr said the industry should develop a universal indexing system that any financial company could use to retrieve images housed in any archive.
"Image on demand is Viewpointe's model" and "that's the Fed's ultimate model" as well, Mr. Herr said. "Our strategic direction is to electronify checks as soon as possible, and to use whatever means to make that happen."
