A much-anticipated pilot of the Small Value Payments Co. image exchange network, in which two major banks were expected on Friday to settle their first check transactions using digital images of the items, has been postponed.
Bank One Corp. and KeyCorp have been transmitting check images to each other through the system since mid-June, but settling the transactions the traditional way, by physically moving the paper checks. The two said last month that they expected to begin settling some transactions with images on July 23, but it now appears that effort will not happen until mid-August.
Though the banks involved downplayed the significance of the delay, this is the second time this year that SVPCo. has detailed its deployment plans and then backed away from that schedule.
Since beginning the image swap test in June, Bank One was acquired by J.P. Morgan Chase & Co. Jeffrey Lyttle, a spokesman for the Bank One side of the merged company, said the Bank One check image team decided to delay the image settlement effort because of another project, an upgrade to a demand deposit account system that was related to the July 1 merger and also set to occur over the weekend.
As recently as last Tuesday, it seemed all systems were go for the image settlement test. That was when the National Clearing House Association announced that Key and Bank One, which are both NCHA members, would be settling the first image transactions through the Salt Lake City Clearing House Association. Key, which is based in Cleveland, has a processing center in Salt Lake City and is testing its image systems at the center.
But on Thursday afternoon the NCHA issued a new statement saying that the schedule had changed.
“The dates were always intended to be preliminary, not etched in stone,” Mr. Lyttle said. “It was a matter of other priorities taking precedence that were more important from a Bank One perspective. We’ve got to do one thing at a time.”
The July 23 date had been set in mid-June, well before the merger of the New York and Chicago banking companies, Mr. Lyttle said. “There’s a lot of moving parts going on right now with J.P. Morgan Chase and Bank One. Priorities can certainly change in a six-week period.”
SVPCo. said in January that Key and Wells Fargo & Co. would be the first two banks to begin testing the image exchange network, starting in June. They were selected for the leadoff position because of their readiness to clear with image, but since then Wells Fargo has been replaced by Bank One. Wells is now slated to hook into the network in August. Bank of America Corp., which was originally expected to begin testing in October, is now to begin testing its own SVPCo. connection by next month.
Henry C. Farrar, the business manager of SVPCo. and a senior vice president with its parent organization, Clearing House Payments Co. (formerly the New York Clearing House Association LLC), said the banks have been diligent about testing their individual image processing systems. “That’s why we’ve been cautious about [announcing] specific dates, not to disappoint people.”
Mr. Farrar said the settlement test between Key and Bank One will probably take place next month, perhaps the weekend of Aug. 20, though he left open the possibility that the schedule could change again. “It depends where everybody is on it,” he said. “This is a huge project.”
All these image processing efforts coincide with banks’ preparation for the Check Clearing for the 21st Century Act, a federal law that takes effect Oct. 28. The law obliges banks to accept image replacement document — essentially printouts of check images — in place of the original checks, and many executives expect it to facilitate a transition to image clearing networks that do not use paper at all to settle checking transactions.
With U.S. consumers writing upward of 40 billion paper checks a year, banks expect the shift to image exchange systems to mean dramatically lower processing costs and much faster transaction settlement.
Most bankers expect it to be a slow transition, however. Mr. Lyttle said that Bank One’s Check 21 conversion timetable for clearing and settling solely with check images instead of paper extends through 2006. “Things will move ahead and move around a lot of times between now and the end of 2006.”
Steve Ledford, the president of the payments consulting firm Global Concepts Inc. of Atlanta, also discounted the delay. “I’m feeling pretty darn good about the way things are going,” Mr. Ledford said. “All we’re doing right now is making sure things work well. The exact timing is probably less important than the overall movement toward full production.”
