Republic National Bank of New York has hired Systematics Information Services Inc. to process its checks, on an imaging system from Unisys Corp.
Republic, with $36 billion in assets, is the first large bank to contract for a vendor to provide image-capture services.
The bank anticipates savings of 20% of its annual check-processing budget in the first full year of the contract, an executive said.
Republic officials said that, by outsourcing its check operations, the bank will move to image technology at least a year earlier than it could have done had it kept the operations inhouse.
Both the bank and Systematics declined to disclose the contract terms.
N.J. Processing Site
Republic's 200,000 items a day will be processed in Systematics' Piscataway, N.J., check-processing facility. The software and services vendor is based in Little Rock, Ark.
The New Jersey site will also be the first that Systematics converts to technology for capturing images of deposited checks.
"These are very exciting times in check processing," said Thomas Rea, senior vice president of Littlewood Shain & Co., a consulting firm in Exton, Pa.
"There are clear opportunities to drive costs down by consolidating operations or relegating functions such as check processing to a utility status," Mr. Rea said.
"The questions senior executives have to ask themselves are |What is the role of check processing in my strategic plan?' and |What do I have to gain or lose by outscoring?'"
Many banks have been hesitant to invest in image systems for proof-of-deposit functions because of the multimillion-dollar price tag.
But for several years bankers have been interested in sharing check-processing facilities to reduce unit costs and share the investment needed to take advantage of image processing.
Rethinking the Issue
Until recently, talks along these lines have failed because of technical and competitive concerns.
Last month, however, Bankers Trust New York Corp. and First Fidelity Bancorp agreed to establish a share check-processing utility, leading other banks to rethink the entire question.
Systematics acquired the Piscataway check-processing facility last year from the Federal Home Loan Bank of New York.
The facility already provides conventional check processing to 130 financial institutions.
The company is converting the facility from International Business Machines Corp. technology to Unisys systems and is testing Unisys image processing technology there.
Systematics expects to have the image capture system up and running by November.
The Republic deal will bring Systematics' expected through-put at the facility to 600,000 checks daily. The company plans to move all its New Jersey clients to the image processing system by next year.
Republic National plans to move about half its check-processing operation to the Systematics facility while retaining customer service, research, and adjustment functions in its Manhattan data center.
Bank senior vice president Nicholas A. Calabro said Republic expects to reduce its check-processing budget by 20% overall.
He said the outsourced portion of the operation, which includes encoding, reading and sorting of items, and computer-assisted recognition of handwritten amounts on checks, would cost 35% less than Republic has been spending on similar functions.
Systematics will be replacing an operation in which Republic employs 48 full-time operators and 27 temporary workers.
The processor plans to hire 15 bank employees. Republic is moving 20 to 30 to other jobs in the bank and laying off six or eight, Mr. Calabro said.