Infonox, which to date has sold its payment processing software primarily to casinos, has come out with check truncation software that can turn checks deposited at automated teller machines into electronic images and send them to a bank's processing system.
Lately the four-year-old Santa Clara, Calif., company has been courting bank customers, and it says it is rapidly putting the pieces together to challenge the likes of NCR Corp. and Diebold Inc. in check imaging. It recently signed deals with two processors - Wausau Financial Systems Inc. of Mosinee, Wis., and Advanced Financial Solutions of Oklahoma City - to provide ATM check imaging to community banks. Wausau has contracts with about 350 community banks and Advanced with about 300.
"Our software sits in the ATM machine, and it allows the ATM to capture images - front and back" and assess a check's validity by reading the magnetic-ink character-recognition line, said Safwan Shah, Infonox's president.
It can be used on any Windows-based teller machine from NCR, Diebold, Fujitsu Ltd., and Wincor Nixdorf Inc., Mr. Shah said.
By truncating checks, he said, banks "do not have to pick up the checks every day and put them in the system. They already have the image, and the check is in the process. They can pick up the checks every other day, or schedule it, save their money."
Plus, the customer no longer has to put the check in an envelope before entering it into the ATM - it can be inserted directly, and this change does not entail an exterior retrofitting. A receipt with a check image, front and back, can also be returned to the customer.
Legislation that would give check images the same legal weight as paper checks has been shelved for the year, but Infonox - among many others in the financial services sector - has high hopes for the Check Clearing for the 21st Century Act, previously known as the Check Truncation Act. The legislation, championed by Alan Greenspan, the chairman of the Federal Reserve Board, could pass next year and give banks more ways to use images.
Infonox says that its development of check imaging software is just one step toward its ultimate goal of "driving" ATMs for banks, which is what its Active Payment Platform software does - so far, mainly for casinos. Driving refers to the monitoring, control, and maintenance of ATMs.
"With our Active Payment Platform, you have enormous flexibility, because you define the services that will be put on your ATM, and deposit automation is one of them," Mr. Shah said. "You can't go to a network like Star and ask them to deliver specific transactions on their machines. They're mostly structured as processors."
The processing of the transaction remains unchanged, he said.
The Star network's parent company, Concord EFS Corp., of Memphis, is by far the leading driver of ATMs in the country, with about 100,000 on its network.
Tony Hayes, a director at the Boston-based strategy firm Dove Consulting, called the terminal-driving business "fiercely competitive."
"The pricing is razor-thin, very aggressive, and, typically, deployers are locked into long-term contracts," he said. "It would be difficult to change vendors on a short-term notice."
Mr. Hayes further noted that NCR and Diebold have big advantages over Infonox in the check imaging space because of their long-term contracts with banks. He said that if the Check Clearing Act passes, it will probably have its biggest impact on bank-owned ATMs in retail locations. Most of these ATMs are owned by the large banks that Infonox would like to see as customers, he said.
But Mr. Shah said: "I wouldn't diminish the importance of automating the process of capturing the image at the branch. The manual processing costs are high - they're not trivial."
Infonox's deal with Wausau - NCR's largest reseller of teller machines - could be seen as a customer steal. But NCR dismisses Infonox as a competitor.
"What they've done isn't anything new," said Dick Wheeler, director of marketing for NCR payment solutions. "We announced this last year - the ability to image enable checks at an ATM, and then the ability to process the transaction electronically."
Mr. Wheeler did call Infonox's entry into the truncation software market a "validation" of the technology. The market is expanding as banks look to capture images at the point of presentment, specifically at the ATM, he said.
Mr. Wheeler said he was hopeful the Check Clearing Act - now known by the nickname "Check 21" - would pass by yearend 2003. "Regardless of its passing or not, it still makes financial sense," he said. "The major banks are already working toward exchanging [electronic] checks among themselves."
