Clearing House Payments Co. LLC said Monday that its Small Value Payments Co. division has begun transmitting check images to the Federal Reserve System for processing.
The move connects two of the four major image-exchange networks, and executives at Clearing House and the Fed said it is an important step in the transition to electronic check clearing.
KeyCorp and Wells Fargo & Co. were the first banking companies to transmit check images to the Fed using SVPCo’s Image Exchange Network.
George F. Thomas, an executive vice president at Clearing House, said Monday that Key and Wells transmitted their first image files to the Fed on Feb. 18 and that on an average night they are sending about 20,000 check images worth nearly $200 million.
Through its FedForward service, the Fed receives the electronic files and then transmits them to the Fed location nearest to the paying banks. There the images are printed out as image replacement documents and delivered to the bank for in-clearing and settlement, Mr. Thomas said.
“Even though we are clearing paper,” he said, “we can get significant savings by clearing the items faster and eliminating the transportation expense. We’re pretty pleased.”
SVPCo is developing an extensive image clearing system, and Key, Wells, and three other banks, as well as an IRD-printing vendor, are routing some check images between themselves.
Clearing House, which is based in New York, has said it expects nearly all of its 19 owner banks to be using the system commercially by the end of the year. Last August, Key and JPMorgan Chase & Co. became the first banking companies to send images through the system.
This is SVPCo’s first effort to settle payments outside its own system. In addition to SVPCo and the Fed, several major banks are testing the settlement system offered by the massive check repository Viewpointe Archive Services LLC, and more than 3,000 small and midsize banks have joined the Endpoint Exchange system operated by Metavante Corp.
Key said it was the first bank to use FedForward, which the Fed unveiled in late October.
Fred Herr, a senior vice president at the Federal Reserve Bank of Atlanta, said the central bank is still testing the next piece of its image processing system, which will let banks receive and clear check images electronically. That service, FedReceipt, should be available later in the year.
Mr. Herr said that banks face more difficult challenges in receiving and processing image files from senders that use different software.
“You really have to take on a lot of interoperability to ingest the formats and match them with your internal systems,” he said. “That can take some work.”
Mr. Thomas said two more SVPCo banks are scheduled to connect to the Fed soon, though he would not name them or say just when they will get connected.
Michael P. Barnum, an executive vice president in Key’s client services group, said the Cleveland banking company has experienced no glitches, either in transmitting files to the Fed or to its initial exchange partner, JPMorgan Chase.
Already, Key has been able to route items to paying banks at hundreds of locations around the country through the Fed connection. Mr. Barnum said Key would use the image system “opportunistically,” such as accelerating the settlement of high-value transactions.
