As banks continue to push corporate clients to handle payments electronically, they are showing less interest in processing paper checks and invoices at lockbox facilities.

Bankers say that offering electronic payments services enables them to offer a variety of other for-fee features, while the arduous work of opening envelopes and sorting checks is becoming less viable, particularly as people write fewer of them. This is especially true for retail lockboxes, which process consumers' payments to billers. And Citigroup Inc.'s deal in July to sell its entire operation to First Data Corp. shows that the same trends are starting to hit the wholesale business where business-to-business transactions are handled.

Amol Gupte, the head of Citi's North American treasury and trade solutions unit, said the company agreed to sell its retail and wholesale lockbox units in order to focus on more lucrative payments services, such as receivables management and information reporting. He noted that lockbox sites typically have complicated machinery and extensive automated systems that need to be maintained, making them more like an industrial plant than a banking service. Citi concluded that lockbox "is a manufacturing business we did not want to be doing ourselves," Gupte said.

Earlier in July JPMorgan Chase & Co. sold its retail lockbox business to the payments processor Regulus Group LLC. Barry Barretta, a principal at the Chicago consulting firm Treasury Strategies Inc., said the two deals signal an inflection point in the lockbox business, as more banks exit the market. "The retail trend is almost completely played out," Barretta said. "The wholesale piece, you're just seeing that start."

Banks have been more willing to outsource their retail lockbox functions while retaining the wholesale businesses, which handle more complicated transactions and therefore carry a higher fee. But it can be a tough call. "Owning something is always better than not," said Craig T. Vaream, a managing director in the JPMorgan Treasury Services unit. "We need to be close to the client and understand how to provide that capability for them."

Retail lockbox is a straightforward job, Vaream said, processing checks for amounts that correspond to payment coupons and posting the payments to customers' accounts. The increasing use of electronic payments and credit cards eventually led JPMorgan Chase to conclude that it was a declining business. But wholesale lockbox services are more complex and more lucrative, he said, because a single check can cover multiple invoices and include a range of disputed items, partial payments or other adjustments.

Still, vendors that offer lockbox service say they are preparing for more wholesale volume.

Regulus, a unit of 3i Infotech Ltd., is the country's largest provider of outsourced lockbox services, and focuses almost exclusively on retail contracts. It is considering expanding its wholesale processing services, said Josh Wendroff, the product marketing manager at 3i Infotech. Regulus provides clients with a single file of payments information, whether through the Internet, by phone or through a lockbox to handle complex, wholesale payments.

Nancy Etheredge, a First Data spokeswoman, said it would integrate Citi's six lockbox sites into its own Remitco unit, which has seven locations and processes 48.3 million transactions a month for more than 300 clients. Remitco already does some wholesale business, and expanding its wholesale operations is "definitely a consideration," Etheredge said by e-mail.

Citi is not the first to get out of wholesale lockbox. Northern Trust Co. created a joint venture in 2001 with the vendor Fiserv Inc., and SunTrust Banks Inc. outsourced its wholesale and retail operations in April of last year to Symcor Inc., along with its check clearing and statement production.

Barretta said that while processing retail lockbox payments can be worth just pennies per item to a bank, a B-to-B payment can net up to $1 per check, largely because of the value of the imaging and data capture to the corporate client. As a result, wholesale lockbox remains an attractive business for big cash-management banks.

However, many of these banks have developed electronic payments services that are starting to take off. These enable banks to offer new types of automated cash management services, but the trade-off is that they also cut into their wholesale lockbox volume. "There's a threat to the big players" that offer wholesale services, Barretta says. They are "seeing that revenue go away."


Steve Bills is the deputy technology editor at American Banker.

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