Royal Bank of Canada has announced plans to convert its entire check processing operations to an image-based platform from International Business Machines Corp.

The $129 billion-asset bank, based in Montreal, will spend up to $44 million over the next four years for an IBM ImagePlus High Performance Transaction System system that will process between four and seven million checks daily.

The system will initially be used in the proof of deposit function, but other applications for image statements and on-line image retrieval may be added later.

The deal is the strongest endorsement yet for IBM's five-year-old check image platform, which was beset with developmental delays early on but has since become a leading solution. Other clients include Mellon Bank Corp. and Barclays Bank PLC.

Royal Bank's proof of deposit operations have been in limited production on the IBM system for about a year.

The proof function - in which a bank determines whether a check is drawn on an account with sufficient funds - is very labor intensive and is thus ripe for image processing. Large-scale image proof- of-deposit systems are equipped to automatically "read" courtesy amount numbers on checks, reducing the need for live proof operators.

In part because of labor reductions, officials expressed confidence that the bank's investment in the system will be justified.

"The cost of entering the image technology field is high, but the opportunity cost of not harnessing its power is even higher," said Don Berardinucci, an executive vice president.

The bank's ambitious plans for the High Performance Transaction System has IBM officials "delighted" that Royal Bank rode out the years of development problems.

"What they are really saying, I think, is that it has been worth the wait, that it's delivering what we expected it to," said Geoff Emerson, a general manager with IBM Payment Solutions.

"Now we want to get on to the business of saving money."

Though Unisys Corp., Blue Bell, Pa., was first to market with a large scale image proof of deposit system, IBM is considered by many to be the key to the future of check imaging due to its dominant market share in check processing systems.

Big Blue's mainframe computers, operating systems, and check processing hardware are used by the vast majority of banks above the community bank level, observers said.

"This is a big win for IBM to get this into large-scale production at a bank with very high check processing volumes," said David Medeiros, a bank technology consultant with the Tower Group, Wellesley, Mass.

"If they do this, they will probably be the highest-volume processor on the IBM platform anywhere."

Royal Bank began testing the High Performance Transaction System last summer with 50,000 items daily. In March, the bank boosted that number to 250,000 items per day, and it ultimately expects to convert all of its check volume to image by 1998.

Bank officials said they also may use the system in fee-based services such as check truncation and on-line delivery of check images to corporate customers.

Royal Bank will be closely watched by other institutions. Though several hundred banks use image technology in the proof area, few large banks have reported dramatic reductions in cost, Tower executives said.

However, image proof of deposit is still a young technology. Experts expect that many of the institutions using it - including Comerica Inc., Huntington Bancshares, Barnett Banks Inc., Mellon, Signet Banking Corp., and Barclays - will begin to see more significant benefits in the next few years.

Proof of deposit operations are estimated to cost the U.S. banking industry about $2 billion annually, according to the Tower Group. This number is about 40% of the industry's total check processing costs.

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