Optical disk technology, long held out as a savior to large banks with a plethora of paper, has been increasing in popularity among banks both big and small. Originally perceived as a way to access check images quickly, the technology is now used for mortgage documents, letters of credit, signature cards, and any other documents banks need to store and retrieve.

Cost effectiveness, a need to eliminate the vast amount of paper and costly microfiche, and the ability to access information more quickly and easily have recently driven even communitysize banks to embrace this medium for storing records of all kinds. Bankers have been able to find more range in terms of the available systems and their costs - from as little as a few thousand dollars to a few million.

Banks Seen as Innovative

"Optical disks, intended to be used in conjunction with imaging systems to store digitized images, are finding applications in banking where image technology has yet to be applied," said James Moore, a consultant for Mentis Corp., in an August 1993 report. "With the cost of optical disk storage coming down, large banks are finding it cost effective to download customer information created within their internal operations to optical disk."

Optical disk usage has had particular resonance in making banks' lending areas and customer service operations more manageable. One 12-inch optical disk can hold more than one billion bytes of information - translating to mounds of paper, or one month's worth of checks for a large bank. Most bank users have moved far beyond a stand-alone optical terminal to large jukeboxes, which can hold several of these disks.

It Works in N.J.

At Central Jersey Bank, a $1.7 billion-asset bank based in Freehold, N.J., replacing reports kept on microfiche and paper with laser disk paid off fast, said Jack Watkins, senior vice president for operations.

"By eliminating paper and having it all on optical, the departments can access the reports faster on a daily basis," Mr. Watkins said.

Central Jersey started using an optical storage system in January 1993. Within a year it had recouped its $300,000 investment in hardware and software, Mr. Watkins said, and since then it has saved in excess of $100,000 more.

Moreover, he added, the system has saved the bank time and trouble and helped it provide better service.

Central Jersey is currently expanding its optical disk project to accounts payable and letters-of-credit divisions. Mr. Watkins expects the technology to move further into mortgages during the first quarter of 1995, to streamline the lending process.

"Optical disk can replace anything we would have on microfiche," Mr. Watkins said.

Prices Coming Down

Bankers said that disk, unlike fiche, has proved more accessible, less wasteful, and cheaper - even with the up-front costs involved in a new system - compared to the costs of fiche. While the cost of optical disk media has come down drastically over the past few years, they said the price of fiche has flattened out. The price of optical disk hardware has declined between 30% and 45% a year on a per megabyte basis, according to IBM spokesman Tom Beermann.

But microfilm vendors such as Imnet Systems might debate that point.

According to Les Cowie, the vice president of marketing for Imnet, microfilm can provide the same response time and the same cost effectiveness, and hold the same amount of information as optical disks in some cases. His company espouses a hybrid approach to data storage and performs a cost analysis to determine how individual clients should convert files.

"I think a lot of people are being misled into thinking optical disk is imaging" Mr. Cowie said. "Imaging means electronically requesting an image and having it delivered electronically."

Although big banks are often the ones to set the pace with technology, smaller banks may have had the advantage in the optical disk arena because the earliest systems were based on a small local area network platform, said Vic Jipson, a lab director for IBM systems division in Tucson, Ariz. Now, he said, a bank can establish an entry-level library for as little as $15,000.

"The optical business is continuing to grow right now and the technology is really being applied in finance where you have a lot of record-keeping," Mr. Jipson said. "The argument [for optical disk] becomes more compelling year by year."

Testimonial from Florida

According to Nona Cox, a senior vice president at Jacksonville, Fla.-based American National Bank, storing reports and statements on microfiche usage cost her bank $12,000 to $13,000 every month.

The $580 million-asset bank installed an optical data archive, combined with a phone and fax retrieval, so branches could reach the information more readily. Although American National still uses fiche for signature cards, plans are in the works to convert those to disk as well.

"I think this is the way to go and even small banks like us are able to take advantage," Ms. Cox said. "The payback [for us] came in less than a year."

As a vendor of optical technology primarily to small and mid-sized banks, Protocorp International has had more of them clamoring for optical disk storage. It now has 90 bank customers of its optical software, including Central Jersey Bank.

Big Savings Foreseen

Larger banks, too, have become more aggressive in their application of this technology.

Just last month, U.S. Bank embarked on a large-scale project to convert all its management reports from paper and microfiche to optical storage. The $21 billion-asset regional bank expects to save more than $1 million a year in paper alone - the bank now uses 20 million pieces of paper each month. Bank managers will be able to call up information on their desktop computers, rather than skim through a fiche reader or sort through printed reports.

The $2 million bankwide conversion has been in the planning stages since March 1993, and should be wrapped up by October. Concurrently, the bank has also been installing an optical system for its commercial loan servicing area. The bank's check and trust areas may be next on the list, according to Stephen Casey, a manager of office technology for the bank.

But U.S. isn't the only big bank to jump in with both feet.

$3 Million Mortgage System

PNC Mortage, a unit of PNC Bank Corp., has also set out to "redesign its process" by storing its extensive loan documentation on disk. After a year of development, PNC installed an image system at its customer service site in Louisville, Ky. last month.

The bank sunk $3 million into the project, but considering that the mortgage unit already spends $500,000 in microfiche, executives expect to see at least a 20% cost savings.

"Once you get past the fixed cost, this is absolutely cheaper," has said Peter Begg, the executive vice president for loan administration for PNC.

Aside from the cost issues, the optical disk can compact the information - two jukeboxes can hold PNC's entire loan portfolio, more than 480,000 files. The speed with which the information can be accessed has decreased from as long as two days to as little as 30 seconds.

Fed Moving Toward Disk

Even the Federal Reserve Board has been wooed by the promise of optical disk technology. Although it acts as a federal agency obligated to maintain public records, the Fed has piloted projects with optical disk as long as four years ago and has spent at least $400,000 so far on converting its records to disk.

"We would like to have all our records on this system," said Barbara Lowrey, an associate secretary for the board.

Most notably, the central bank has made clear its plans to convert checks to an imaging system as well. The Fed began accepting proposals from vendors in April, and plans are underway to start storing the bank's half billion checks a year as images by mid-1996.

"Microfilm doesn't always make the best copy of any document," said Florence Young, the assistant director for check and automated clearing house operations for the Fed. "The use of images can enhance the quality of the copy of a check."

Prices Still Falling

But optical disk storage, while it has been steadily gaining momentum in the industry, still remains a fairly new technology that could provide a competitive edge to banks willing to employ it.

"The real benefit of optical disk is in the size; you can fit much more data on a tiny disk," said David Medeiros, a consultant for the Tower Group. "Magnetic disk and magnetic tape are more mature technologies, whereas optical disks have only come along in the past decade, so the prices are still coming down - it's not quite as mature a technology."

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