Nonbanks Catching On to Benefits of Check Imaging

As banks gravitate toward check imaging systems to improve monthly customer statements, nonbanks that offer checking services are not far behind.

One of the biggest mutual fund companies, Fidelity Investments, Boston, plans to roll out an image statement service this year to customers of its cash management account, sources say. The system, currently in a pilot test, produces miniature copies of checks for mailing to customers with their monthly statements.

DST Systems Inc., Kansas City, Mo., performs processing for 40% of the mutual funds in the country. DST plans to offer an image statement service to its mutual fund customers soon.

Bank and mutual fund executives believe the statements will be popular with consumers because they eliminate the need to store years' worth of checks for tax purposes.

Serving the Customer

Bill Santos, vice president of business technologies at Fidelity, said better customer service was a big factor in the company's decision to invest in an image system. Customer-service representatives can call up check images via computer to answer inquiries and fax copies to customers, as requested.

"Our strategy is to provide a high level of customer service," Mr. Santos said. "We decided to invest in image technology after we examined both the internal [cost reduction] and external customer-service benefits."

Fidelity's special printer produces copies of 10 check images on one side of a single sheet of paper. Other imaging systems in use at banks produce 18 smaller check images per sheet.

Mr. Santos said Fidelity chose to include fewer images per page because the copies are easier to read and some of their customers write fewer checks each month than the typical user of a bank checking account.

A Head Start on Encoding

Another big difference in check handling at mutual fund companies: The checks are already encoded, usually by Federal Reserve or commercial banks, with special numbers for clearing purposes. This same feature of check clearing is costly for banks because the items are usually encoded manually.

These factors make it easier to build a business case for mutual funds companies' investment in check imaging. Because it creates efficiencies in paper handling, image technology can cut back-office costs. What's more, Fidelity is considering charging customers for the new statements, which would allow it to earn fee income.

Fidelity's system consists of a network of Sun Microsystems workstations, software, printers, and optical-disk storage devices specially designed for the company by a subsidiary of Litton Industries called Industrial Automation, Alameda, Calif.

Fidelity has experienced a few hitches in this system, which took a year to implement. The Litton subsidiary cut back on some businesses, forcing Fidelity to look at other suppliers. Sources say the company is now working with TRW.

Mr. Santos said the changes at Industrial Automation will not affect Fidelity substantially, adding that the company continues to work with the Litton unit on upgrades to its image statement system. He declined to comment on TRW.

Service-Bureau Possibilities

DST is implementing a check imaging system from NCR Corp. The company is working with some banks, such as State Street Boston Corp.'s State Street Bank and Trust Co., that may serve as image capture sites for checks, according to Ron L. Kirts, systems manager at DST.

Once DST gets its system up and running, Mr. Kirts said, it may offer to produce image statements for banks on a service-bureau basis.

Despite the imaging push by mutual funds, some bankers are not worried that customers will switch to get the new statements. But they say it's important for banks to have the latest hightech service; this will allow them to compete with nonbanks that are muscling in on their turf with traditional banking products.

"We like our customers to think we have the best and the newest thing," said John S. Nania, vice president of marketing at Central Fidelity Bank, Richmond Va., which began offering image statements early this year. Since the bank introduced the image statement service, Mr. Nania said, 33% of its 235,000 personal checking account customers have signed up; and over 90% of all new customers want the service.

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