The check imaging era opened shortly before midnight Wednesday, when Intrust Bank in Wichita sent its first batch of check images to Atlanta to be delivered to the Federal Reserve banks as image replacement documents.
Those substitute checks were presented to paying banks in the Southeast on Thursday, when the Check Clearing for the 21st Century Act took effect.
Intrust’s items reached the Fed through a circuitous path across two different networks and multiple companies. This arrangement can be seen as an example of the cooperation the banking industry will need to make image exchange a standard part of its clearing practices.
“Somebody had to do it,” said Jim Simon, vice president of operations at the bank, a unit of the $2.7 billion-asset Intrust Financial Corp. “We were offered the opportunity. We had all the toys in place, and we said sure, we’ll participate.”
Intrust was one of the original two banks that began exchanging images two years ago in a pilot program through the Endpoint Exchange Network of Oklahoma City, an operation now owned by the Metavante Corp. subsidiary of the Milwaukee banking company Marshall & Ilsley Corp.
The IRD presentment done Wednesday night began when Intrust transmitted a batch of checks across the Endpoint Exchange network. The files that Endpoint could not clear among its participating members, 2,385 checks worth $1,236,023, were forwarded to a check processing site in Atlanta operated by Fiserv Inc., of Brookfield, Wis., where they were printed out as substitute checks.
Fiserv then trucked them to the Atlanta Fed for processing, using a deposit slip from another Marshall & Ilsley subsidiary, M&I Bank, which acted as a correspondent bank for Intrust. (M&I has an account with the Atlanta Fed; Intrust does not.)
M&I in turn received credit from the Fed under its net settlement system, and Intrust then received credit from M&I, with the National Clearing House Association acting as the settlement agent between the two commercial banks.
Fred Herr, a senior vice president at the Federal Reserve Bank of Atlanta, said the substitute checks were presented to the paying banks on Oct. 28. He added that the Fed began its own image exchange on Wednesday night as well, transmitting some image files from Seattle to reserve banks on the east coast for clearing.
This arrangement may sound complicated, but the participants agree that it is more efficient than hauling the original checks around the country. Indeed, they say it is similar, but faster than, settling paper checks through correspondent banks.
Mr. Simon said he hopes to begin processing more of his items in this manner. Until recently Intrust has been clearing only about 20,000 checks a month using Endpoint’s image network, scarcely one-half of 1% of the bank’s 2.5 million transit items. Many of his checks are bound for other banks in Kansas, and “a lot of those institutions are not on board yet” with Endpoint, he said, so he must still deliver the original paper checks.
But under the new arrangement Mr. Simon can transmit more of his checks across the Endpoint network, even if they are not destined to be settled electronically with other Endpoint participants.
Mark Craig, the general manager of CheckClear LLC, the Metavante unit that operates Endpoint Exchange, said the company has nine other member banks that want to start clearing their transit items under the same arrangement immediately, and another 100 banks that hope to be doing so by the end of November.
“We wanted to make darn certain that the process works end to end before we bring on the other banks,” Mr. Craig said. “Our goal is to be in total production by yearend.”
Over the longer term, “We would want to interoperate with SVPCo in the same manner as we do with the Federal Reserve,” Mr. Craig said. “The same is true for Viewpointe and anyone else who comes into the fray.”
Both the Small Value Payments Co. division of Clearing House Payments Co. and Viewpointe Archive Services LLC of Charlotte are also introducing image-clearing technologies, but Endpoint is the first in commercial operation. By hooking together more independent networks — and all of their participants — each participating bank will be able to clear more checks electronically.
Alenka Grealish, the manager of the banking group at the research and consulting firm Celent Communications LLC of Boston, applauded the achievement, noting that it came from outside the big banks that have been considered leaders in image exchange.
“A group of small and midsize banks have galvanized their resources to do it, and they don’t have as much to gain as the big guys,” Ms. Grealish said. “They’re out of the gates and they’re doing it with a 21st-century model, in real time. It’s good to see that kind of out-of-the-box thinking by a less heralded group of banks.”
Ms. Grealish said the move was important symbolically, but the larger benefits of image exchange are still to be realized.
“We’re talking about paper checks still. It’s hard to get into a jubilant mood, but it is the beginning of a big change,” she said. “I’ll get excited when I can go to an ATM and deposit a check and get immediate funds availability, or I’m a retailer doing point-of-entry image capture and I’m getting immediate funds availability.”
