Big banks are throwing their weight behind X9.37, a new standard for the electronic exchange of check images, but some smaller banks seem to be resisting, saying it is overengineered for their needs.
Few banks of any size are swapping check images today, so the disagreement has not caused problems yet. But most banks are gearing up for a not-too-distant day when exchanging images will become commonplace. Those that back the standard say any holdouts will hinder the whole system and reduce the benefits from reduced paper flows.
"You've got to have a standard that everybody subscribes to and uses," said Hank Farrar, the president and chief operating officer of Small Value Payments Co., whose owners - 20 large banks and the New York Clearing House, which now calls itself The Clearing House - all support X9.37. "You can't have one guy speaking French and one guy speaking German."
But Endpoint Exchange, one of the few image-exchange networks actually up and running, does not use the standard and sees no need for it. Most Endpoint Exchange members are smaller financial institutions.
"The format was built for big banks," said Mark Craig, the general manager for CheckClear LLC, the Oklahoma City company that operates Endpoint Exchange. "The little guy has no reason to build a X9.37 file."
X9.37 is technically a revised version of a decades-old format used for electronically transmitting check data such as transaction values and the account numbers to debit and credit. The updated version, which the American National Standards Institute has approved as a draft standard for trial use, allows images to be attached to the same files and is being considered by numerous banks for full-scale exchanges.
SVPCo participated in the roundtable talks that led to the X9.37 format, and the Federal Reserve Board is planning to use it for its exchange programs. Supporters call the standard a critical element in the nation's emerging image-trading infrastructure.
"We have to have a standard in order to exchange images," said Phyllis Meyerson, a senior vice president with the Electronic Check Clearing House Organization in Dallas, which has been spearheading the development of X9.37.
Bank One Corp., one of SVPCo's owners, says it has already run successful tests of X9.37, in anticipation of an image-exchange pilot planned for early next year through SVPCo's as yet unfinished network.
"We plan to use X9.37 as the standard," said Tony Gerevics, a first vice president and the head of float transportation and the electronic presentment strategy group at the Chicago company.
The standard will become the dominant structure for moving large volumes of check images between banks, he said. "I think this will become the railroad for images for the next several years."
But at Endpoint Exchange, Mr. Craig is equally emphatic that the small banks and credit unions using his system will not touch the standard. "No one is currently using the X9.37 standard in production," he said. "If I was one of those banks [using Endpoint Exchange], I would never" use it.
CheckClear is a unit of Advanced Financial Solutions, and the Endpoint network uses a proprietary format developed by AFS that initially ran only on AFS hardware. Last month it made that format available to other hardware vendors, and Mr. Craig said several companies are now likely to develop systems for banks that want to hook into Endpoint Exchange.
Intrust Bank in Wichita has been using Endpoint Exchange to trade images since October. Jim Simon, the vice president for general operations, said he is pleased with the technology it uses. Rather than delving into the technical details of image formats, he was happy to install the systems and software that his vendor said Intrust needed, he said. "Whatever their format is, that's what we use. It makes no difference to us."
Mr. Craig said that the AFS format is compatible with X9.37 and that in the future files will be convertible to the X9.37 structure for transmission between the Endpoint system and other networks. Nevertheless, the standard is not a good fit for the mostly smaller banks that have signed up with Endpoint, he said.
The reason for the dichotomy lies in some key design differences between Endpoint and SVPCo. Endpoint processes images in near-real time, one at a time, sending a constant trickle of files through the system. But SVPCo's system, intended to support some of the largest banks in the country, will send batch files containing very large numbers of items, including electronic presentment data and images.
"X9.37 is architected to move some pretty massive amounts of data in the files," said Mr. Farrar of SVPCo.
The SVPCo banks account for more than half of the nation's check volume, and Mr. Gerevics said the sheer number of images they will need to move makes it difficult to imagine processing items one at a time. "I'm not sure a [single-item-processing] technology will get us where we need to go."
According to Mr. Craig, Endpoint's systems can be expanded to handle any amount of data traffic. He also said that it could eventually trade images with other networks by converting its files into an X9.37 format.
But there are concerns about compatibility in the industry.
"I don't know how they are going to exchange with the rest of the industry," said Mr. Farrar. "I don't see how you can be a player in this industry and not use standards."
