Banks are slowly starting to install check-imaging technology in automated teller machines.
Many banks already send images from branches and remote corporate customer sites to processing centers, so the ATM is one of the final frontiers for imaging systems. However, bankers who are testing the technology say converting paper checks into images as soon as they are deposited into the machines improves security and makes funds available to the customer faster, and they predict that other banks will follow suit.
Co-op Network, the largest debit network for credit unions, said Monday that one of its customers, California Center Credit Union of Rancho Cucamonga, had tested the technology by capturing a check image at an ATM and sending it through Co-op to Western Corporate Federal Credit Union of San Dimas for clearing.
The $25 check was fed into an ATM built by NCR Corp., Co-op said. The Ontario, Calif., network did not say when the test took place.
Kathy Herziger, the network's vice president of product development, said in a press release that imaging is "a vital service for the credit union industry and our membership" to offer to consumers. She also said the network is "working diligently to offer our member credit unions this technology in the months ahead."
Wells Fargo & Co. demonstrated ATM conversion Oct. 28, the day the Check Clearing for the 21st Century Act took effect, with a check made out to the Hayward, Calif., school district.
Today the San Francisco banking company is pilot-testing imaging at 10 ATMs from three manufacturers in the San Francisco Bay Area. Jonathan Velline, Wells' head of ATM banking, said each ATM receives 100 to 200 image deposits per week, and he is "shaking out the technology, making sure it works."
There are still some kinks that must be resolved, he said. For example, image-enabled ATMs do not use deposit envelopes; customers feed checks and cash directly into the machine, a big shift from the current practice.
"We're changing customer behaviors that have been built up over 20 years," he said. "It's as much of a marketing challenge as it is a hardware and software challenge."
The ATMs use character recognition technology to determine the value of checks and the denominations of any currency. It displays these amounts on a screen for the customer to verify, and if there is a dispute, the machine will return the deposit to the customer.
Returning deposits requires the feeder mechanism to work in both directions, and early image-enabled ATMs tended to jam when running in reverse, Mr. Velline said. "We've made a lot of progress in the last year."
Jerry Silva, a senior analyst at MasterCard International's TowerGroup market research unit, said issues such as these would slow the adoption of image-enabled ATMs. In a report issued in November, TowerGroup predicted that 2007 would be the first big year for installing imaging equipment in ATMs, but that even by 2010, less than 40% of full-function, bank-owned ATMs would be able to convert checks into images.
In an interview Tuesday, Mr. Silva said that banks might not make any major purchases until 2008, in part because of subtle technical differences that have yet to be resolved. For example, different ATM vendors may position their magnetic image character recognition scanners on opposite sides of the feeder mechanism, so people would have to insert checks facing one way at some machines, and another way at others.
"It's funny how little issues can trip you up," he said.
However, he said banks would eventually move to image-enabled ATMs, to reduce both fraud and the cost of transporting checks. "The economics are too compelling not to do it."
Though the long-term goal is to use imaging technology to initiate electronic clearing at the ATM, Mr. Velline said the earliest benefit has been improved customer service and reduced fraud.
Scanning checks at the ATM rather than collecting envelopes for processing later at an operation center lets Wells eliminate the verification delays it imposes on ATM deposits to protect against "empty envelope fraud," Mr. Velline said. "We can give them instant credit right then and there."
Bank of America Corp. has showcased image-enabled ATMs in some of its television ads, but Betty Riess, a spokeswoman for the Charlotte banking company, says it is not yet using images for settlement. B of A is testing about 20 image-enabled ATMs, all near its Charlotte headquarters, she said.
JPMorgan Chase & Co. is also testing about 20 ATMs with imaging technology. Tom Kelly, a spokesman for the New York company, said the initial goal is to provide customers with copies of the checks they deposit.
Though JPMorgan Chase plans to eventually use images to settle checks deposited into ATMs, he said it would not do so any time soon.
"We're still really in the testing phase. We have not rolled it out broadly," Mr. Kelly said. "We don't have the economies of scale to do that yet."
