Much of the banking industry considers this year the culmination of a years-long effort to implement an electronic processing system to replace the vast paper check infrastructure.
But some executives are more excited about the next potential transition in payments: processing and settling transactions in real time, and across all of a bank's networks.
Yes, the Check Clearing for the 21st Century Act is expected to transform a check processing system that handles more than 40 billion paper items every year. And yes, that shift should lead to annual cost savings of billions of dollars.
But those changes are just a step in the right direction, according to William Randle, the chief executive of Synoran LLC, a Columbus, Ohio, payments technology vendor. Instead of just automating paper check processing, he is focused on developing a payments system that can automate and streamline all of a bank's transactions.
"Check 21 is just a minor thing, really," he said. "The future of payments" does not revolve around image replacement documents, the paper printouts of check images that will be legal instruments and will shortly enter the check processing system.
And using image exchange networks to settle checks is just a way to automate a paper-based system, and it leaves much room for improvement, he said.
The future of payments revolves around "creating a whole new environment that's more efficient," Mr. Randle said. "This country is not known as having one of the more efficient payments systems in the world."
And he has a big personal stake in this vision. He said this week that Wells Fargo & Co. has become the first banking company to license Synoran's net settlement system, which will enable the bank to clear and settle transactions faster. Eventually, when other banks adopt comparable technology, the system will give Wells a much clearer image of its positions.
Mr. Randle called the system a way for banks to monitor incoming and outgoing payments to multiple partners and across all of their parallel payment systems.
Banks today move money across numerous systems: the automated clearing house network, automated teller machines, credit card transactions, wire transfers, and others. These operations are generally handled by different bank units, which often do not communicate with each other, and many of these systems do not settle their accounts until the end of each workday.
Though a bank may be expecting many incoming ACH payments, that balance could be negated by a large outgoing wire transfer. As a result, he said, the bank probably does not have a clear view of its positions until all of these payment networks have finished processing their daily activity.
"We see the need for a real-time payments hub," Mr. Randle said. Currently, "there's no way a bank can know its intraday position across the entire enterprise, but I think bankers will want to know that, if they could."
Mitch Christensen, the executive vice president for payments services at Wells Fargo Services Co., the banking company's Scottsdale, Ariz., technology division, certainly does want to know. "We want the ability to control and manage our settlement," he said. "There isn't a lot of that capability out there right now."
Wells has completed testing and installing the Synoran settlement system, and by next quarter it will be able to use the technology to settle several different types of payments, including cash, paper checks, check images, and wire transfers. If other banks implement this type of system, Wells will be able to keep tabs on its intraday positions with correspondent banks, Mr. Christensen said.
That type of information is invaluable, he said, because processing payments faster would help Wells dramatically improve its risk management procedures. Also, the funds would be available sooner, and more importantly, Wells would know exactly how much money is available, so it can better invest its funds, even for short periods, he said.
"We think information is critical," Mr. Christensen said. "We want that information available as soon as possible."
Mr. Randle has been working on these technologies for more than a decade, since he was an executive vice president spearheading an ambitious electronic payments effort for Huntington Bancshares Inc. When the Columbus, Ohio, company decided in 2001 that it no longer wanted to be involved in developing technology, he bought out its stake in the technology and formed e-Bank, which has since become Synoran.
Along the way he picked up a few marquee partners who have bought into his vision of a unified payment system: MCI Inc., which is providing the networking backbone; Electronic Data Systems Corp., which has a joint marketing agreement with Synoran; and Oracle Corp., whose database applications are at the foundation of the net settlement system.
Andrea Klein, the vice president of financial services industry marketing for Oracle, said the level of information offered by a net settlement system "appeals to banks that want to look at payments as an enterprise."
Many other banks around the word are interested in the concept, Ms. Klein said; she expects "several" to sign up to use the system this year. "We see this as a global initiative."
Mr. Randle also says the large banks that are most forward-thinking in making payments a key part of their business will be the logical target market.
"If they accept that payments are a large part of their revenue, then they will want their system to be as efficient as possible," he said.
Still, Mr. Randle says it is a big leap between the siloed payments systems, often paper-based, which dominate banking today, and the efficient, integrated one he envisions.
Fortunately, the industry is currently at an important inflection point. Check 21 will take effect Oct. 28, and many banks have decided they will need to invest in new technology. Though Check 21 systems are expensive, the cost of getting left behind in the transition to check imaging could be worse, he said.
And as long as banks are ready to go shopping, Mr. Randle hopes they will be willing to spend a bit more to upgrade other parts of their payments infrastructure.
If it weren't for Check 21, he would not expect banks to be investing in Synoran's system for two to three years, he said. "Legislation is the catalyst for big change."
