Though the recently enacted Check 21 law has much of the banking industry looking at settling transactions with digital check images, at least two vendors and the Federal Reserve are developing an alternative: image replacement document services.
The Fed's IRD efforts and those of Fiserv Inc. and Unisys Corp. recognize that though image clearing is the goal, many financial institutions will not be ready to offer such services when the law takes effect next October. Tdhough image replacement documents - or IRDs - will probably just bridge the gap, and demand is uncertain, expectations are high enough to set up a bit of a competition among vendors.
For the moment, the chief purveyor of IRDs is NetDeposit Inc., a subsidiary of Zions Bancorp of Salt Lake City that has long been perhaps the only company touting the product. Danne Buchanan, the chief executive of NetDeposit, said the market "could be substantial."
Bob Hunt, a senior analyst with market research firm TowerGroup in Needham, Mass., said NetDeposit is the only company that offers IRDs right now. "Nobody else is ready yet," he said.
But Mr. Buchanan said that will soon change. "We think there will be a lot of competition," he said. "We don't have this market cornered."
Image replacement documents are magnetic-ink reproductions of checks printed on high-quality paper. Under the Check Clearing for the 21st Century Act, they will be have the same legal weight as paper checks, and banks will be obligated to accept them in lieu of the originals.
Though many banks hope to begin settling transactions next year by exchanging only digital images of checks, "a lot of people are struggling with 'How are we going to do this?' " said Stephen Ward, an executive vice president for item processing outsourcing and technology services at Fiserv in Brookfield, Wis.
The alternative is for one bank to capture an image and transmit it electronically to a site near the receiving bank where it is printed out as an IRD, which is delivered to the bank, and cleared like a paper check.
This is not as efficient as settling with only the image, but Mr. Ward said it can be cheaper and faster than transporting checks across the country.
Jack Walton, an assistant director with the Federal Reserve Board, said the agency is evaluating several IRD products and expects to offer the service by next October.
Fiserv will be testing its IRD service next year and also expects to have it available by October. With 49 processing centers around the country plus a presence in about 60 other cities through a partnership with Loomis Fargo & Co., Fiserv will have a broad geographic reach for printing and delivering IRDs.
"It doesn't make any sense to print an IRD in Denver if you have to fly it to Los Angeles," Mr. Ward said.
NetDeposit has partnered with Electronic Data Services Corp., over whose network it transmits IRDs. Mr. Buchanan said it will have IRD printing capabilities at 26 locations soon and at more than 40 next October.
Unisys, in comparison, has just eight locations, according to David Milholland, a solution director for payments at the Blue Bell, Pa., company. That fits with its projections that IRDs will not be used in high volume as a replacement for paper checks.
"Our service is going to be on-demand, and we will be able to reproduce selected items," he said. "This is not a bulk system for producing hundreds of thousand of IRDs."
The wild card in these plans is demand; nobody seems to have a good estimate of how many banks will want to use IRDs, or how many they will want to use.
"It's an undefined volume," Mr. Ward said.
"The bulk of the larger trading partners will want to trade images," Mr. Milholland said.
A second question is pricing. Neither Fiserv nor Unisys has set prices for the service, though they do say prices will be tied to volume. NetDeposit charges 3 to 8 cents per item, depending on the customer's volume.
"If people are going to use this, it has be less expensive than processing a check," Mr. Ward said.
