The National Clearing House Association says paper processing will probably remain central to check clearing for longer than many bankers would prefer.
Fred Redeker, the organization's president and chief executive, says image-based clearing has been slower to catch on than expected and that bankers have lowered their expectations.
"With the apparent delays in switching over to full image exchange, I think the use of IRDs" - image replacement documents - "is going to be common in the marketplace for a lot longer than people thought," Mr. Redeker said in an interview last week.
"A lot of bankers were thinking this was a stopgap deal, that full image was going to come on pretty quick," he said, but current estimates indicate that use of paper checks should remain fairly widespread until 2008 or 2010.
That means "the need to use the IRD capability will be more extensive than people thought," Mr. Redeker said.
For that reason, the Dallas-based NCHA, a bank-owned group that was the first clearing house to settle payments by image exchange, has struck a deal with Fiserv Inc. to offer banks the vendor's IRD-printing services.
Aaron McPherson, a research manager at Financial Insights Inc. of Framingham, Mass., agreed that image exchange is proving to be an unexpectedly thorny issue for banks.
"Receiving check images and processing them seems to be a lot more complicated and offers more risks than banks had anticipated," Mr. McPherson said. "That's a problem for a lot of banks. Everybody is ready to send, but nobody is ready to receive."
Mr. McPherson said he is hearing more complaints from bankers about the cost of investing in a new way of processing a payment product in steady decline.
The NCHA's deal with Fiserv, of Brookfield, Wis., was announced last week. Under a master contract, members of the clearing house qualify for what Mr. Redeker called "fairly major" discounts based on their collective volume.
Ted Umhoefer, the senior vice president of product management and industry relations in Fiserv's item processing group, said NCHA member banks can still choose to negotiate their own contracts with his company.
In the IRD-printing business Fiserv competes against private-sector outfits, including Electronic Data Systems Corp. of Plano, Tex., and against the Federal Reserve.
Mr. Umhoefer said Fiserv has five print centers in operation and plans to open seven more in the next three months. He said the company plans to open eight to 10 additional printing centers by the end of 2005 with the goal of having facilities "in every surviving Fed city by the end of this year or early next year."
The Federal Reserve has said it will reduce the number of check processing sites to 23 by the end of this year from 45 three years ago to cut its costs as the number of checks declines. Still, the central bank is the largest intermediary for clearing, handling more than a third of the nation's check volume, and it has a commitment to serve all institutions.
In addition to the check printing deal, the NCHA said it will provide settlement services to Fiserv item processing clients that participate in the vendor's fledgling Fiserv Clearing Network.
Fiserv announced plans for the network last May, envisioning it as a lower-cost way for its 1,600 item processing clients to image exchange files among themselves without resorting to outside networks.
Until now Fiserv has focused on building its network using local settlement banks, though it also has been working with Clearing House Payments Co. of New York, which has been building its own image-exchange system through its Small Value Payments Co. division, known as SVPCo. So far Fiserv has signed four clearing banks, which primarily serve banks in the Midwest, the Southwest, and on the West Coast.
Fiserv still plans to enlist additional local settlement banks around the country, and Mr. Umhoefer estimated the number will eventually reach eight to 10. Those local centers are important, he said; in Minnesota, where Fiserv launched its clearing network first, 60%-70% of checks being processed are drawn on other local banks.
But he added that working with the NCHA and SVPCo "provides the linkage between the settlement banks so we can exchange checks across the country."
