A year after the Check Clearing for the 21st Century Act took effect, and supposedly triggered a race to use image exchange networks, many bankers are still at the starting blocks.
Bankers now say they were initially overoptimistic about their ability to overhaul their check-handling centers, and that they underestimated the challenge of transmitting images to trading partners and posting electronic transactions to customers' accounts.
Still, several executives say they are satisfied with the industry's progress since Check 21 took effect on Oct. 28, 2004, and they predict that image exchanges will accelerate next year. However, they also say that it will be 2007 before a significant number of checks are cleared in an image format.
One sign of the difficulty in setting up these networks became apparent when the Federal Reserve Board officially launched its FedReceipt service for delivering images to paying banks.
The Fed introduced FedForward, which lets banks transmit images to its processing centers, the day Check 21 took effect. But that was only half the job; until FedReceipt was introduced, the Fed had to print image replacement documents and deliver them to the paying banks.
Fred Herr, a senior vice president at the Federal Reserve Bank of Atlanta, said last week that FedReceipt went live in mid-September. Over the past year the Fed had said that the service would be available in January, then in May, before finally announcing it.
Fourteen banks are using it now, Mr. Herr said. The Fed is printing about 1.8 million IRDs a day, still just a drop in the bucket compared to the roughly 35 billion checks written annually in this country.
"Most users of the [imaging] process have confidence in the process," he said. "We're moving more into an implementation stage rather than an investigative stage."
Other check imaging networks are also reporting progress. Eight large commercial banks are now exchanging images over The Clearing House Payments Co. LLC's SVPCO Image Payments Network. Also, Electronic Data Systems Corp. receives image files through the SVPCO network and converts them into IRDs for delivery.
Susan Long, a senior vice president at The Clearing House and the head of SVPCO, said members are moving 240,000 check images a day over the network; four more banks are testing it now and are on track to start using it to exchange images this year.
And Viewpointe Archive Services LLC of Charlotte has started receiving images bound for one of its members, Bank of America Corp., from a nonmember, Compass Bancshares Inc. of Birmingham, Ala.
Viewpointe was originally designed as a shared archive for large banking companies to use to settle checks among themselves, but it modified its model this year by introducing the Pointe2Pointe service for exchanging images with nonmembers.
Jennifer Lucas, Viewpointe's marketing director, said Compass began sending images to Viewpointe last week, and that the four regional banks that have signed up for Pointe2Pointe should start using the service this year. She said three member banks - First Horizon National Corp. SunTrust Banks Inc., and B of A - are settling checks through the archive; they settled 300,000 checks that way in September.
But that progress only underscores how slowly all of these projects are moving. For example, as recently as May, Viewpointe was saying that six or seven of its 11 archive members would be sharing images by the third quarter, and that eight or nine would be doing so by yearend.
Viewpointe's five owner banks have committed to using the archive to clear all check transactions with one another by the first quarter of 2007. Only two, SunTrust and B of A, are sharing images now.
SVPCO has also suffered some high-profile delays. KeyCorp and JPMorgan Chase & Co. started using its network for image exchange in September of last year, and in January, SVPCO projected that 16 of its 19 bank-owners would start using the network this year. Half that many do so now.
"Our expectations were probably a little overambitious," said John Feldman, B of A's image transaction and payments executive.
Many companies underestimated the complexity of replacing paper check processing systems with electronic ones, he said. For example, banks have had to update numerous other parts of their operations, from the design of monthly statements to the processing of returns and exception items.
"We're changing the backbone of the process that we have used for check processing for 50 years."
B of A, which processes more checks than any other U.S. banking company, is the only one using both SVPCO and Viewpointe for electronic settlement, and Mr. Feldman said he expects to continue using both networks.
"Channel diversity is" important, he said. "We firmly believe we've got to play in both camps."
This year has been one of testing and evaluation for B of A, and image exchange volume could begin to ramp up by the end of 2006, he said. Next year "is the inflection year, the year we really begin to see the volumes between the banks grow."
But Mitch Christensen, the executive vice president of payment strategies at Wells Fargo Services Co., the technology division of Wells Fargo & Co. of San Francisco, was a bit more cautious.
Wells Fargo is not yet using images to clear payments with any trading partners, he said. "In the next year or two we will ramp up significantly. Probably the big ramp-up will be in 2007."
It uses the SVPCO network to deliver images to EDS, which prints them out as IRDs and delivers them to paying banks. Wells Fargo bought an equity stake in Viewpointe in January.
Banks will eventually adopt image clearing, Mr. Christensen said. "We might be scaling a mountain that is a little higher than we thought. There may be some crevasses that we don't know about yet, but I haven't seen any roadblocks that are insurmountable."
Though small banks have gotten less attention than big ones, many are already using images.
Paul Danola, the president and chief operating officer of Metavante Corp.'s financial solutions group, said 5,000 small and midsize banks have signed up to use its Endpoint Exchange Network, and 3,500 of them are live now.
Endpoint delivered 8 million images to paying banks in September, about 40% more than it did in June. Mr. Danola said that volume could jump to 50 million items a month if Metavante could persuade a single top-tier bank to use the network.
Metavante is talking to several big banking companies and hopes to close a deal by early next year, he said. "We're very bullish on the exchange component."
