Hard on the heels of its merger with Chemical Banking Corp., Chase Manhattan Corp. is pouring more than $100 million into check imaging technology.

Because both Chase and Chemical bought into check imaging before their merger, the new entity is equipped to advance quickly with what is one of the most comprehensive check projects ever undertaken. Chase handles nearly 15 million checks per day.

"We will, by yearend, image every check that comes through our bank," said Vincent Caranante, vice president of cash management for Chase.

"This is a major event in the check processing industry," added Denis O'Leary, the bank's chief information officer.

"The industry has not used technology to change fundamental processes since the introduction of the (magnetic ink line) in the early 1960s."

Check imaging - the conversion of paper checks to digitized pictures in order to process them electronically - has become popular among banks of all sizes.

The Chase project stands alone because of its size, and its success or failure could serve as a lesson for other large banks.

A few years ago, the most popular applications for the technology were in the proof-of-deposit and statement areas. More recently, banks have begun to make the check images available on-line to customers and to customer service employees.

Using image technology from International Business Machines Corp., Chase expects to use all of these applications in the coming years. Bank executives said Chase also is building an archive of imaged checks that will stretch back seven years.

Chase-owned banks like Texas Commerce and Chase Delaware also are participating in the frontal assault on imaging, offering their business customers check libraries on CD-ROM.

"This is a pretty notable development," said David Medeiros, a check imaging analyst for Tower Group, Wellesley, Mass.

"Most banks are currently implementing check imaging selectively. It's very unusual for a bank of their size to be imaging all checks coming through, because they're so big and their volumes are so high."

At the time of the merger, Mr. Caranante said, Chase was working to build an archive, while Chemical was focusing on providing month-end statements to customers, .

By coincidence, he added, the partners' efforts complemented one another, enabling the merged bank to accelerate its imaging timetable.

Lawrence A. Willis, an executive vice president at First Manhattan Consulting Group, said several superregional banks are "significantly further along than the new Chase" in the field of imaging, but that Chase is "ahead of the pack for the top-tier super-money-center institutions."

Signet Banking Corp. "has had full image POD capability and selective statementing for probably almost five years now," and Barnett Banks Inc. "is processing upwards of four million checks a day," Mr. Willis said. Comerica Inc. and Huntington Bancshares also are ahead of the curve, he added.

All of the banks he mentioned use check processing systems from Unisys Corp.

Before to the merger, Chase had entered a $480 million outsourcing deal, under which Fiserv Inc. would handle a large portion of the bank's check image processing. The bank recently ended that contract, paying a $15 million exit fee.

Chase executives said the bank has enough check volume to justify running its own system, and, if the it can operate efficiently, it can save the fees that were built into the deal Fiserv.

Chase executives did not reveal projected savings from taking control of check imaging. But they are confident of a positive customer reception of the services.

At least as far as commercial customers go, that expectation does not appear unreasonable: Banks almost universally report that commercial customers are eager to receive check images and monthly statements on CD- ROM disks, experts said.

"There doesn't seem to be any limit to the interest," said Thomas A. Mennell, a senior vice president at Texas Commerce Bank who helped develop the CD-ROM product there.

"We have people with fewer than 1,000 checks a month who have signed up for it."

To underscore its dedication to image technology, Chase is offering the imaged check records at no extra cost to customers.

"We're positioning this product without significant surcharge, in order to gain broad acceptance," Mr. Caranante said.

Ultimately, however, the imaging capability is expected to generate fee revenue from customers and from sales of services to other financial institutions.

But Chase officials said that the imaging project is much broader in scope than simply providing customers with a handy mechanism for viewing checks.

The next step, Mr. Caranante said, is "applying image technology to brand new applications," which will include everything from improving customer service and reducing check fraud.

"In the next 12 to 18 months, we anticipate having a fairly aggressive schedule of product rollouts," he said.

The work will span the bank's business units and is expected to drastically reduce customer service inquiries and clerical tasks.

Customers with modems will eventually be able to tap into the bank's archive, providing them and their auditors with easy access to check records.

Armed with the ability to extract check data items, such as dollar amounts, more quickly, the bank is considering a host of new applications.

Checks for automobile finance could include the vehicle's identification number, for instance. Government agencies could use codes on checks to help place extra fraud controls on purchasing.

"I think we're generating new interest in what had been a pretty mundane area," Mr. Caranante said. "With the investment we're making in imaging, we're taking a broader perspective, out of the product-specific arena."

Brian Blair, a former IBM employee who worked with Chemical on its image system, said Chase has carried forward Chemical's goal of becoming a "digital information bank."

"A lot of banks say, 'we're going to replace paper with images on CD- ROM, and that's a nice concept, but you can add a lot more value than that," said Mr. Blair, who is now a banking consultant with AFS & LSC of Exton, Pa.

Mr. Blair said planners at the former Chemical viewed check imaging as "part of a larger product opportunity" and that the mandate to move forward came from top officials like Mr. O'Leary, who participated in strategy sessions.

"Everyone got the message that this was a very important undertaking," Mr. Blair said.

Analysts predicted it would take several years for Chase's investment to begin reaping profits, but that customer service improvements might be more immediate.

"This will create a tremendous competitive advantage for Chase, in that they'll be able to provide a lot of informational service that our research says corporate customers are interested in," said J.D. Carreker, president of J.D. Carreker and Associates Inc., Dallas.

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