Viewpointe Archive Services LLC has connected its massive check image archive and clearing system with the one operated by the Federal Reserve banks, and SunTrust Banks Inc. is already using the link to settle checks electronically.
The link enables Viewpointe's bank clients, which claim to handle about half the industry's check volume, to route image files to every bank, thrift, and credit union in the country.
"The connection to the Fed is a big deal," said Martin W. Patterson, a senior vice president at SunTrust who is responsible for enterprise check services. "We won't use that path for everything, but if we needed to, we could."
Viewpointe was expected to announce the Fed link today.
SunTrust has been using the Viewpointe archive to clear checks with other Viewpointe members since December 2004, and Mr. Patterson said Monday that the Atlanta banking company began using the Fed link last month to clear checks for smaller correspondent banks.
Those banks send image files to SunTrust, which clears the checks drawn on other Viewpointe members through the Charlotte archive.
Checks drawn on non-Viewpointe members are sent to the paying bank through the Fed's network. The volume is quite small, Mr. Patterson said.
The Fed accepts image files through its FedForward service and delivers them to banks through its FedReceipt service. When it receives image files destined for banks that are not ready to accept them, it must print them out as image replacement documents and deliver them to be settled along with paper checks.
The Fed connection is considered critical in the shift to image clearing. Big banks, such as the ones that use Viewpointe or the SVPCO Image Payments Network operated by The Clearing House Payments Co. LLC of New York, have been the driving force behind image exchange, but they must still deliver paper checks or IRDs to financial companies that are not image-ready.
Connecting Viewpointe to the Fed means that Viewpointe's users can send off their entire check volume across electronic networks, with the Fed taking on the duty of printing and delivering IRDs.
(A third network, Endpoint Exchange, is operated by Metavante Corp., Marshall & Ilsley Corp.'s technology subsidiary, and serves mostly small banks.)
Bank of America Corp. and JPMorgan Chase & Co., which are the nation's largest cash-management and check-clearing banks, are both Viewpointe users.
Fred Herr, a senior vice president in the Federal Reserve System's retail payments office, said that though the long-term plan has big banks sending many images to smaller banks through the Fed's system, "it's a mixed bag now."
Because so many banks are still not ready to accept image files, the ones that can are "putting volume where they know it will work, and they're working out subsequent relationships," Mr. Herr said.
Richard R. Oliver, the manager of the Fed's Retail Payments Office, said last week that about 760 financial companies are currently using FedForward to send images across the network, and 234 are receiving files electronically through FedReceipt.
Increasing the number of FedReceipt users is one of the Fed's "top priorities" this year, said Mr. Oliver, who is also an executive vice president at the Federal Reserve Bank of Atlanta. He spoke at the Payments 2006 conference in San Diego.
Robert Hunt, a senior analyst at MasterCard International's a market research unit, TowerGroup of Needham, Mass., said the Viewpointe-Fed connection is important because it demonstrates that two major image-clearing systems can interoperate. "I look at this as another major step forward," Mr. Hunt said. "We're at the point where we're going to start the big move to image exchange, finally."
As exchange volume grows, banks will pay more attention to the impact of electronic settlement on the bottom line, Mr. Hunt said. "There's going to be a lot of least-cost routing coming into play here, especially by the big banks, because they've got so much volume."
Mr. Patterson said SunTrust is keeping a close eye on the changing economics of check clearing. Transportation costs are increasing, he said, and as other banks begin to clear checks electronically - without having to produce IRDs - electronic clearing will become more attractive, whether the image is sent through Viewpointe, the Fed, or another system.
"If it's more cost-effective to use some other electronic clearing options, we will do that," he said.
SunTrust and First Horizon National Corp. of Memphis were the first two companies to clear checks within the Viewpointe archive. Today, SunTrust is clearing checks electronically with five other Viewpointe users, Mr. Patterson said, either by sharing images within the archive or transmitting them through Viewpointe's Pointe2Pointe connection for banks that are not using its archive.
Jennifer Lucas, Viewpointe's marketing director, said 12 of its 16 users are using its systems for image clearing. The 16 include all five of Viewpointe's owners: SunTrust, B of A, JPMorgan Chase, U.S. Bancorp, and Wells Fargo & Co.
Last September, Viewpointe announced that the five had put themselves on an 18-month timetable to be clearing all of the checks drawn on one other - an estimated 2.4 billion to 2.5 billion a year.
