A year ago check image exchange promised to be the technology horse race of 2004.
With the President's signature scarcely dry on the Check Clearing for the 21st Century Act, bankers and technology vendors were predicting rapid deployment of imaging technology in preparation for this Oct. 28, when the law was to take effect.
But bankers now realize the shift will be a marathon, not a sprint. They worry less about being fast out of the gate and more about running the race.
As a result, though traffic across the image exchange networks is slowly increasing, it is now predicted that it will be several years until digital images are used to clear most interbank checks.
But executives developing image networks say the industry is at least moving in the right direction.
"It is a little more slow than we might have anticipated," acknowledged Susan Long, a senior vice president at the Clearing House Payments Co. LLC who heads the New York company's electronic clearing services. "Industrywide, I think people underestimated the amount of work that was going to be involved. It is very involved."
By the end of 2004, three private image-clearing networks - Clearing House Payments' SVPCo system; the Endpoint Exchange Network, owned by the Milwaukee banking company Marshall & Ilsley Corp.; and the image-sharing system run by Viewpointe Archive Services LLC - were in commercial operation. So was the FedForward system for transmitting images to the Federal Reserve's banks.
Volume is light partly because some major pieces of the image networks are still under construction and only a few major banks are ready to use the systems that are complete.
The Fed, for instance, said this month that it had started accepting image files from banks but had not started up its FedReceipt service for transmitting those files to receiving banks. That service is expected to go into operation in January.
Analysts still differ about how soon image-based clearing will become dominant. For example, Celent Communications LLC said in a recent report that 61% of transit checks will be cleared electronically by 2007, but Financial Insights said the figure will be only 20% in that year, and will not hit 60% until 2010.
Endpoint Exchange is one of the pioneering check image exchange systems; CheckClear LLC of Oklahoma City put it into commercial operation in 2002. (Marshall & Ilsley bought CheckClear in June.)
Mark Craig, CheckClear's general manager, said last week that 15 million checks will clear though Endpoint in 2004, nearly a third of them this month alone. As the other image networks begin ramping up and connecting with one another, the growing number of potential exchange partners will drive up volume, he said.
"Going forward, it looks great," Mr. Craig said. "Other networks are beginning to go online, so we will have new trading partners in 2005 that we expected to have in 2004."
The timetable that Clearing House Payments laid out in January has gone by the wayside. It aimed to get its first eight banks ready for image exchange this year, but the today only two are live on the system, KeyCorp of Cleveland and the Bank One unit of J.P. Morgan Chase & Co. are live on the system. (JPMorgan Chase and Bank One Corp., which it bought in July, had both signed up early.)
The first pair of trading partners was to begin exchanging images in June, and the rest were to start two by two through October. But Key and Bank One did not complete their first image settlement until the end of August; they say they are now in production mode, not pilot testing, but their volume remains low.
The others committed to using the network are Wells Fargo & Co., Bank of America Corp., Wachovia Corp., Comerica Corp., and U.S. Bancorp. Ms. Long said five banks are testing their SVPCo connections and may start exchanging images in the first quarter.
Viewpointe Archive's image-clearing operation got off to an even slower start. Only two of its participating banking companies - First Horizon National Corp. and SunTrust Banks Inc. - have begun settling checks through it, and they began this month. But Viewpointe, of Charlotte, says it will connect all 10 of its bank owner-customers by mid-2005.
Though image settlement using Viewpointe has been low, "the year went much better than I would have thought," said chairman and chief executive John G. Lettko last week.
"We expected to see a lot of things go wrong, and so far that hasn't happened," Mr. Lettko said. Unlike other check image networks, which transmit digital image files, Viewpointe members will store theirs in a shared archive and clear transactions by granting permission to look at them.
By midyear all of Viewpointe's other members - Bank of America Corp., BB&T Corp., HSBC Bank USA, JPMorgan Chase, National City Corp., U.S. Bancorp, Zions Bancorp., and Bank of Montreal's Harris Bank - are to go live on the system, in pairs, Mr. Lettko said. Each new participant will then be able to share images with all the others that already use the archive for clearing.
By the end of 2005 all the Viewpointe banks may be using the system to clear all the checks that would otherwise move physically among them, Mr. Lettko said. "We'll have two quarters [from midyear] to get to full capacity, and I don't think we'll have any trouble getting there."
About half the checks written in the United States are drawn on the 10 Viewpointe banks.
Clearing House Payments' SVPCo system will come up more slowly. 2004 "was sort of a building year where we were putting all the pieces in place," Ms. Long said. 2005 will be "an implementation year," with all 19 of the company's owner banks expected to hook into the image network.
"The big ramp-up year" will be 2006, Ms. Long said.
"Personally, I'm not concerned how long it takes banks to get connected," she said. "They're taking a slow, methodical approach to it. They are being careful; they want to make sure they get it right, and I think they should."
"The commitment is there; the desire is there," Ms. Long said. "They want to make this work."
