Fifth Third Bancorp has become the first nonowner banking company to send check images through the SVPCO Check Image Exchange Network, and says the effort will cut down on its expenses.
Of course, most banks already view imaging as a way to reduce their costs, but at Fifth Third, which is well known in the industry for its devotion to operating efficiencies, the transition is part of a long-term, and very directed, plan to generate savings or new sources of revenue.
David Harris, the Cincinnati company's vice president of operations technology, says its strategy has been to build up its image infrastructure in stages. That effort has included creating for-fee archiving services, using image statements to encourage customers to stop receiving monthly statements, and using image exchange to cut down on float. His company is even considering buying a stake in SVPCO's parent, Clearing House Payments Co. LLC of New York, to maximize its cost savings.
Mr. Harris said that his company began sending images to the Federal Reserve System several weeks ago, using a direct link, and last week Fifth Third shifted that traffic to the SVPCO network, which provides a faster network connection than the Fed.
Fifth Third plans to use the SVPCO connection as its primary link to the Fed and other endpoints, "rather than invest in multiple DS3s," the high-speed Internet connections that carry the large image files, he said.
Because it was not one of the system's earliest adopters, Fifth Third was able to skip some of the baby steps the early adopters took. When Fifth Third started sending files to the Fed, it did not have to devote any development expenses to setting up tables of specific account numbers that were eligible for image clearing. Instead, it used routing and transit numbers to determine which checks it would send out as image cash letters to the Fed.
To keep the volume low while they evaluated the system, some of the first companies to use the SVPCO network created lists of specific account numbers for which they would convert checks into images.
But when National City Corp. and Union Bank of California began sending each other images through the SVPCO system in April, they used routing and transit numbers, which can define bank units down to an individual branch. Once a company approves a routing and transit number, every check from every account within that number may be sent across the network.
Fifth Third is following their lead. Mr. Harris said that when his company began sending images directly to the Fed, it chose routing and transit numbers that tended to include either accounts that handled higher-value checks, or paying banks whose checks took two to three days to clear.
The goal was to reduce check float, often by a day or more, and therefore save money, he said. "That's the value proposition for us."
Fifth Third is now using the SVPCO network to send its image cash letters to the Fed, which then prints image replacement documents and delivers them to the receiving banks, Mr. Harris said.
"What we were doing was more tactical with the Fed," he said. "We have used a very iterative approach, that has allowed us to move forward while managing our risks."
Daniel App, Fifth Third's vice president of enterprise float, transportation, and image strategy, said his company is evaluating whether to take an equity stake in The Clearing House, which is owned by 21 large U.S. banking companies.
The main reason? Cost.
"Strategically, Fifth Third believed we had to be involved with some of the larger networks in order to achieve the savings in efficiency," Mr. App said.
Susan Long, the senior vice president of SVPCO's electronic clearing services, said Fifth Third gained another benefit from packaging its images into the Fed's image cash letter format: It does not have to decide whether to send items as images or as IRDs. The Fed can make that decision according to the readiness of the receivers.
"That's very forward thinking on the part of Fifth Third," Ms. Long said.
The Fed began its FedForward service, which accepts image files from sending banks, in October but has not introduced the counterpart, FedReceipt, which will let banks receive image cash letters from other banks that are routed through the Fed's network.
Fred Herr, a senior vice president in the Fed's retail payments office, said an initial group of banks is in final testing to go live with FedReceipt. Until then the central bank is printing IRDs - now 850,000 to 875,000 on an average day - for delivery to the receivers.
In the meantime, Fifth Third is looking for more partners for image exchange. Mr. App said it is talking with the other big banking companies that use SVPCO.
Fifth Third has also found other ways to take advantage of images. In recent years, as it implemented its imaging systems, it gained an early return by storing those images on optical disks for corporate customers, Mr. Harris said.
More recently Fifth Third shifted to image statements, and in April it stopped returning cancelled checks to its retail customers. Previously about a third of its 3 million checking and savings account holders had gotten their checks back.
Chris Sibila, Fifth Third's vice president of retail and affiliate administration, said it redesigned its monthly statements and made them available online.
Fifth Third says it can now get monthly statements out faster, because it no longer has to sort the checks to stuff them into the envelopes.
Last month it launched an online campaign to promote e-statements, and it has promoted the electronic option to call center callers who asked about the statement changes. Since April about 500,000 account holders have started viewing their statements online.
