Some bankers are still trying to fight the wheels of progress.

The vast majority of paper checks are now cleared electronically, but a few financial companies are still clinging to paper.

By law, these holdouts are entitled to insist that sending banks deliver either the original items or paper printouts, a decision that is starting to concern payments executives, because the cost of producing these substitute checks is the responsibility of the sender, not the receiver.

As more banks make the shift to digital images, the economics of paper checks will become less and less appealing, bankers say, and a few financial companies are starting to force the issue.

In a survey published last month by the Independent Community Bankers of America, 8% of the community bank respondents said they had no plans to begin sending out checks electronically, and 9% had no plans to begin accepting digital images, at least through the end of 2010, the time horizon for the report.

Trustco Bank, a $3.6 billion-asset thrift in Glenville, N.Y., is one such holdout. Kevin T. Timmons, a vice president at Trustco and its treasurer, said the 107-year-old company is typically not an early adopter of technology. "We tend to let others make the mistakes and then we join in," he said.

That approach is built into a marketing strategy that promotes the fact that paper checks are still part of Trustco's clearing process. "We have a lot of customers who like getting their checks," notably older people, Timmons said. "We actually actively market it: Bank with us and get your checks back."

Cary Whaley, the director of payments and technology policy at the Independent Community Bankers of America, said most of the banks that want to settle their checks through image-exchange networks are already doing so; the rest will likely be a tougher sell.

In the ICBA's last survey, in 2007, 45% of respondents said they had already implement imaging systems, and 43% planned to do so within two years, which is about where the industry is today, Whaley said.

"The second wave, which we're now finishing up, are the ones who saw the writing on the wall," Whaley said. "For the remaining 8%, explaining the benefits is not going to be effective for that group."

But as fewer banks use checks or substitute checks, the fixed costs of processing paper will continue to drive up the per-item expenses, and Whaley said this will eventually register with the holdouts. "The cost of doing any paper is a cost that can be eliminated," he said.

And those costs are only rising.

The Federal Reserve banks are deep into the process of consolidating all of their paper check processing operations into a single center, in Cleveland; the Fed's Web site says the last other remaining check center, in Los Angeles, will shut down in November.

That means banks that want to send out paper checks, no matter where they are located, will have to deliver them to Cleveland, Whaley said. "Is that a reasonable expense, to have that last check on that last plane to Cleveland?"

To some extent, regional correspondent banks and check processing vendors will continue to help ease the transition for banks on the trailing edge of the transition, but they won't do it forever.

Cliff McCauley, an executive vice president at Frost National Bank of San Antonio, agreed that the rising expense of paper clearing would ultimately convert the holdouts.

"The economics will change their mind quickly, before yearend 2010," he said. "The infrastructure is much too expensive to maintain for a small volume of paper."

Frost Bank, the banking subsidiary of the $15.8 billion-asset Cullen/Frost Bankers Inc. of San Antonio, handles check processing services for other banks, including a few image holdouts.

"We have 180 banks that we clear for, and 178 of them have adopted the image technology," McCauley said.

But changes under way at Frost could help drag them into the image world. Frost is installing check scanners at its teller stations, which will enable it to convert all checks to images as soon as they enter its system; once that is complete the banking company plans to shut down the high-speed reader-sorters in its item processing centers, likely by yearend.

Frost will continue to handle checks for the two remaining banks with slower, lower-volume equipment, which it uses now for its corporate lockbox clients, at least in the near term.

"They're going to be forced to" shift to imaging, "because we're not going to support it much longer," McCauley said.

Frost will help the holdouts in the transition to image, McCauley said. "We'll work with them," perhaps providing scanning equipment and training, he said. "It's going to be an intermediate step for them to go to image."

McCauley would not name the two banks, and they both declined to make executives available to comment on their check strategy.

Whaley said more imaging holdouts will change their minds as the economics continue to shift in favor of digital images.

"There are fast followers, and there are slow followers. The common denominator between them is nimbleness," Whaley said. Ninety-two percent of community banks have already committed to be sending check images by the end of 2010, and "my guess is that by 2011, that number is going to be higher."

This group will likely include Trustco as well. Timmons acknowledged that a significant share of the checks it sends back to customers are not the original items, but substitute checks, and the lack of complaints has prompted the banking company to rethink its resistance to image exchange,

"It doesn't appear we're going to face any customer issues," Timmons said. "We are in the process of making that switchover at some point," though he could not say when that would occur.

The Electronic Check Clearing House Organization, the rulemaker for image exchange, reported that of the 1.3 trillion checks cleared in June, its latest numbers, more than 87% cleared as images without requiring substitute checks. The volume of substitute checks has been falling monthly since October 2007.

David Walker, the president of Eccho, of Dallas, said some community banks still may not have focused on the issue, or may think of image-send — a relatively simple process that accelerates collections — in a different way from image receipt — a more complex process that draws money out of the vault more quickly.

But as image exchange continues to gain ground — the Fed has projected that more than 90% of checks will clear as image by the end of this year — it becomes progressively more difficult for holdouts to keep resisting, Walker said. "If they're going to be in business, it's going to be pretty hard not to do image exchange."