Citicorp and Chemical Banking Corp. are testing a check image exchange service with the New York Clearing House Association.

The service replaces paper checks with digitized images that can be exchanged over computer networks, speeding the return notification process.

The clearing house group views the new service, called Electronic Check Clearing Return System, as the first step toward a high- volume check-image exchange system.

The test is expected to run between four and six weeks.

"Our position, as a group of banks, is that imaging will be used for some time to come for the exception process, for returns, for adjustments, and for high-dollar notices of checks that are in transit." said Henry Farrar, executive vice president with the New York Clearing House.

Chemical and Citibank will use image-capturing hardware and software to send return-item images through the clearing house group's electronic check switch, which helps institutions of first deposit to decide more quickly whether to delay the collectibility of returned checks.

The service allows departments within the banks to exchange check images.

Images can also be made available on-line to corporate customers wishing to review items that may be fraudulent. In this way, the service can produce revenues for banks using it.

Phil Catania, a vice president with Chemical, said the transmission of the image "essentially provides us with a day's earlier notification."

"The depository bank can then take some action in terms of protecting the interests of both its customer and the bank itself," he said.

In a release, Rob Roy, a vice president with Citicorp said, "This pilot will demonstrate that image is a viable and efficient way to return checks."

The image interchange pilot is the product of a working group comprised mainly of New York banks that regularly meets to create the operating rules and guidelines for check clearing.

Besides Citi and Chemical, two other banks - Chase Manhattan Corp. and Marine Midland Banks Inc. - participated in creating the operating rules for the new service.

Chase and Marine Midland are expected to join the pilot at a later, unspecified date. They are upgrading their check processing software to comply with a clearing house rules change that requires member banks to be capable of sending electronic checks.

The image interchange system uses open architecture, which will help the clearing house adopt computer standards being developed by the American National Standards Institute's financial standards committee.

The service uses hardware and software from Unisys Corp., Blue Bell, Pa., and AT&T Global Information Solutions, Dayton, Ohio.

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