PNC Financial Services Group Inc. is using check imaging technology to transform its wholesale lockbox operation.
Payments processed at a lockbox are typically deposited into accounts at the bank that operates it, but PNC is taking a new approach - converting paper checks into digital images and transmitting them back to the bank that hired it to handle the checks.
This product lets the client bank process the deposits and retain the check processing revenue that would otherwise go to the lockbox operator. It would have been impossible without check imaging and is another example of how the technology is driving changes within the payments industry.
"We call it the Check 21 lockbox, or the fully integrated lockbox," said Victor Notaro, the senior vice president of PNC Bank's strategic partners group and U.S. domestic correspondent banking. "This is very different from the traditional outsourced lockbox product."
The Check Clearing for the 21st Century Act is widely viewed as a critical driver of imaging technology and the use of image exchange networks to clear and settle payments electronically.
Mr. Notaro said the outsourced product lets regional banks serve corporate customers that have a national reach without having to build their own lockbox networks. In effect, client banks are outsourcing the mundane tasks of opening envelopes and converting checks into images, while retaining the actual check processing business and its fee income.
The product lets banks "compete effectively, even more effectively, against those top five banks," he said. "As the bank of first deposit, … [PNC's client banks would] get all the additional revenue. More important, they capture and control all that customer data."
The Pittsburgh banking company began planning the product in January 2004 and started a pilot test at its Chicago site with one client bank Oct. 28, the day Check 21 took effect, Mr. Notaro said. "We jumped right into it."
That bank remains PNC's only customer for this product. He would not name the bank, except to say it was a top 10, but not a top five, bank. Nor would he discuss the volume of business under the new arrangement.
According to American Banker's "Ranking the Banks" report, banking companies just outside the top five by assets include, in descending order, MetLife Inc. of New York, Washington Mutual Inc. of Seattle, U.S. Bancorp of Minneapolis, SunTrust Banks Inc. of Atlanta, HSBC Holdings PLC of London, and National City Corp. of Cleveland. None of them responded to a reporter's calls.
PNC has discussed the image lockbox product with several top 15 banks, and "they have looked at this with immense interest," Mr. Notaro said.
"It's the large banks that do the most business" in corporate banking, he said. "They have very strong customer relationships. They have to have a seamless solution."
With PNC's product, the banks can hold on to those customers but hand off much of the actual work.
PNC has a nationwide network of wholesale lockbox sites, with facilities in Atlanta, Chicago, Dallas, Los Angeles, Philadelphia, and Pittsburgh, and a center scheduled to open in Boston next month. "We are making those sites available to all those banks," he said.
David C. Robertson, a partner at Treasury Strategies Inc., a Chicago consulting firm that serves banks, corporations, and other large organizations, called PNC's offering "a very innovative opportunity in the private-label space."
One important feature of the product is that it lets the outsourcing bank retain its primary relationship with the corporate customer, Mr. Robertson said. "You're dealing with the customer. It allows you to keep the outsourcer a little more behind the scenes. They're going to see their primary bank as the source of those items. They're not going to see PNC."
"Check 21 has really changed the landscape," he said. "Outsourcing solutions used to be for smaller banks. For those of us in the business, this is a sea change."