By revamping its check processing operations, Clearing House Payments Co. LLC hopes to hold down costs and increase scale, and one executive said its forthcoming exchange system could challenge the Federal Reserve.
Today the New York company's SVPCo-Check Services unit is to unveil National Check Exchange, a private-sector system that will allow banks to use any of Clearing House's five regional clearing houses. It is slated to start running April 4.
Jerry Milano, SVPCo-Check Services' senior vice president, said paper checks are being used less and less but will not disappear anytime soon. By consolidating its operations, SVPCo-Check Services could increase its volume, he said.
"That's the way to maintain efficiencies in a declining market," Mr. Milano said. "We're going to wring every drop of blood out of this stone that we can."
The National Check Exchange will consist of Clearing House Payments' New York, Chicago, Los Angeles, San Francisco, and Philadelphia facilities.
Mr. Milano said the five clearing houses now handle checks valued at $3.6 trillion a year for more than 400 banks. Consolidating them will streamline the process and reduce costs, he said.
Banks using the system will find it easier to settle checks with trading partners in other regions, Mr. Milano said.
For example, a bank on the West Coast could convert a check into a digital image and transmit it to New York. The item could then be printed out as an image replacement document and delivered to the exchange's clearing site to be handled just like a standard paper check that had been delivered by airplane.
The National Check Exchange will not be involved in transmitting or processing digital images, though another unit of Clearing House Payments is developing an extensive image-exchange network.
SVPCo is seeking more network members and plans to start a 30-day registration period March 4.
The five cities where SVPCo has a center have about a quarter of the nation's population, so the exchange should handle a quarter of the banking industry's check volume, Mr. Milano said.
That would give the private organization a scale approaching that of the Fed's check clearing business.
The central bank once cleared about half the nation's checks and now clears about a third, observers say. Its processing volume is dropping more sharply than check use is, in part because of the surging popularity of electronic payment alternatives.
Peter Allutto, a senior vice president at Bank of New York Co. Inc. and the chairman of the Clearing House business committee that oversees SVPCo-Check Services, said separate clearing houses have traditionally used their own settlement rules.
Having a single set of rules for all the National Check Exchange clearing houses will be much simpler and will lead to more volume and more efficiency, Mr. Allutto said.
