Two bank-owned groups are reporting surprisingly strong gains in image clearing as the industry continues to shifts away from paper checks.
Viewpointe Archive Services LLC plans to announce today that it is clearing more than 95% of the images in its shared repository electronically, rather than printing them out as image replacement documents. By contrast, 34% of all images industrywide must be converted into IRDs for delivery to paying banks that are not ready to accept digital images, Viewpointe will report.
And Susan Long, a senior vice president at The Clearing House Payments Co. LLC and the head of its check-clearing SVPCO unit, said the IRD printing rate among the 22 users of the SVPCO Image Exchange Network is even lower, only 2.3%.
The Clearing House also announced last week that it is consolidating its check and image clearing operations into a single organization to streamline the management of the business. The New York company had broken out its image organization as a separate group in an August 2005 reorganization.
Both companies said their image-clearing volumes are surging at triple-digit rates. At The Clearing House, the number of items cleared in August, through the exchange of image cash letters rose 250.9% from a year earlier, to 263.8 million. At Viewpointe, the number of images shared among the 11 large banking companies that use its archive and the four outside ones that exchange image cash letters through its Pointe2Pointe service rose nearly 502%.
Viewpointe did not provide a volume total, but Diane Scott, its chief sales, marketing, and product officer, said it was clearing images at an annual run rate of 2.4 billion items. (In March, Viewpointe said it had achieved virtually 100% image clearing among its five owner banks, meeting a goal it had set 18 months earlier.)
Image exchanges continue to grow rapidly across the industry. In July, image clearing grew 216.3% from a year earlier, to 261.5 million items, according to the Electronic Check Clearing House Organization and the Federal Reserve banks, which report nonduplicated image volume. (Items frequently travel across more than one clearing system.)
Though the statistics show an industrywide rate of 66% for clearing images without IRDs, David Walker, the president of Eccho, said the actual rate of IRD production is actually higher, because the figures include only checks that are presented to the paying institutions as IRDs after being transmitted in image cash letters, which often include printing instructions. The figures exclude other IRDs, such as those produced by processors that provide remote-capture services to businesses and then print the documents out for the bank of first deposit, which clears them as conventional paper cash letters.
Even so, "the transition to image exchange is continuing to move along at an unprecedented pace," Mr. Walker said.
Ms. Long said that SVPCO's image volume surpassed its paper-clearing volume in April, and that the dollar value of images passed checks in January.
When the industry began to focus on image clearing after the Check Clearing for the 21st Century took effect in October 2004, it made sense to keep the check and image businesses separate administratively, she said, though they had to coordinate with each other closely on pricing and operational issues.
But with Jerry Milano, the senior vice president of The Clearing House's SVPCO-Check Services operation, set to retire in March, and with the ongoing decline in processing of actual checks, it made sense to bring the two businesses back together, Ms. Long said.
SVPCO's August check volume fell 27% from a year earlier, she said. "That's a little higher than we thought. We had budgeted 15%, thinking that was an aggressive number."
Bankers and their processors are beginning to think about the end game for checks, Ms. Long said. "Now it's a matter of trying to figure out how do we wind down that business, how do we exit it, or when do we exit it."
None of this means that checks will go away as a payment system, just that the processing increasingly will be done electronically. The majority of paper checks that The Clearing House is still handling are in markets where it operates local check exchanges, such as New York, Chicago, and Boston, she said.
Even in such markets, a big share of the volume among big banking companies is going electronic, Ms. Long said. For example, Bank of America Corp. and Wachovia Corp., two SVPCO members, exchange images in their hometown of Charlotte.
When will the time come to end paper check exchange? "It definitely will not be next year," she said. "We would not want to prematurely exit that business and hurt our users in any way."
The increasing preference among bankers to standardize their back-office processes around single systems will lead them to eliminate the paper checks as early in the process as possible, she said.
And even though they may have to bear the expense of printing the replacement documents for a while, they still save on transportation, Ms. Long said. The Clearing House ended its air transport service in May 2005. "Nobody want to do IRDs. They cost a lot of money. But it's better than paper."
Ms. Scott said Viewpointe's goal was to encourage industry laggards to switch to images.
"What this shows the industry is that it can be accomplished and it is being accomplished by several institutions," she said.
Bob Meara, a senior analyst at the Boston research and consulting firm Celent LLC, said the evolution of image clearing is proceeding generally the way it should.
"I don't think we have an IRD crisis," Mr. Meara said. "Are they still expensive? Sure. Are they still contrary to the intent of Check 21? Sure. But in the near term, they are serving a valuable function."
