Chase is taking a leading role in the evolution of paper checks to electronic transactions, one that will not only help its bottom line, but will have positive ripple effects throughout the banking industry. "Electronic checking will save the industry $2 billion to $3 billion a year," says Tom Vicknair, Chase's svp in charge of enterprise check reengineering.
The bank has been working closely with ECCHO, the industry's not- for-profit rules and standards organization, which in recent years has been focusing on the implementation of electronic check transactions. Chase is second only to Bank of America in U.S. check processing, moving up to 16 million items each day. And it is one of the first banks with a global commitment to a total reengineering of its check processing platform from archive to image statements. Working with IBM, the bank has built a merged platform, the nation's second largest, from two different check processing systems within one year of its merger with Chemical Bank and with little disruption to Chase's 25 million customers.
Vicknair says image checking will reduce the number of touch points for a typical check from as many as 17 to just one or two. "When a paper check reaches us, we still must photograph it to capture its image. And if the amount is not on the check in magnetic ink, we must do that too," he says.
Full implementation of image checking will take up to 18 months, says Vicknair. Chase already is offering customers check image statements that show reduced copies of their actual paid checks, with up to 15 on a single page. For easy reference, the pages are arranged in check number order and the check number, dollar amount and date paid are displayed below each check image.
The electronic check images are legal copies and customers will never need to ask for the original documents. Even the IRS now recognizes imaged checks as valid proof of payment. Should a Chase customer need additional copies, he can get up to three copies free of charge within three business days.
Corporate customers can view images of their transactions on PC or via CD-ROM or link their mainframe computers to Chase's for direct access. The electronic processing platform eventually will support new Chase products like statements through home banking. All Chase customers can dictate when in the month they receive their statements.
Chase has invested $50 million in its contract with IBM. But Vicknair says converting to electronics will produce a 35 to 40 percent improvement in efficiency for Chase and any other major bank investing in a similar project, though Vicknair also says that smaller banks may still want to farm out their back-office check processing because of the technology's high cost. "Our customers will be able to request copies of checks by phone or retrieve them by PC in a more timely fashion, reducing customer inquiries. Inquiries that used to take us days to service will happen in minutes," he says. Vicknair also expects lower unit costs. "We expect a 25 percent reduction in the cost of processing every single check, and this translates into millions of dollars each year."
The system should greatly reduce fraud with the help of fraud detection software and staff training. The bank contends it already has avoided $31 million in losses due to fraud in 1996 alone. Security will be enhanced, too. "There will be security procedures in place, including passwords and other protections to assure privacy of accounts. For instance, there's an automated check for checks out of sequence," says Vicknair. "Computers have a better eye for fraud than humans," says Vicknair.
There is an element of altruism in Chase's game plan. "We are really involved in two initiatives. One is improving our internal efficiency and our external customer service. The other is working with the Federal Reserve system and other banks to make payments more efficient. By choosing an industry leader like IBM as our partner, we knew we would be helping the entire banking community," says Vicknair.
The bank's check processing platform uses several IBM software products, including CPCS software for check capturing, HPTS for image capturing and "On-Demand for AIX" for check image archiving.