A third check image clearing system is up and running.
First Horizon National Corp. and SunTrust Banks Inc. said Monday that they are using check images stored in the massive repository operated by Viewpointe Archive Services LLC to clear transactions.
Though the volume now is tiny - just a few hundred checks per day - the two banks say this is not a pilot test, but the start of full-bore image clearing.
And Viewpointe's other eight bank-owners say they are on schedule to hook their own settlement systems into the archive by mid-2005. The archive accounts for more than half of all the checks written in the United States, and this aggressive schedule, as well as the size of the banks involved, could be a significant advance over those of the other two image networks.
Endpoint Exchange, which is operated by Metavante Corp., caters primarily to small banks and credit unions. Clearing House Payments Co. LLC's system, which has commitments from several of the country's biggest banks, is still in pilot-testing mode and has missed some of the milestones it set for itself this year.
First Horizon and SunTrust cleared their first image-only transactions Dec. 6, and are continuing to do so daily, said Taylor Vaughan, the senior vice president for treasury management at First Horizon. "This is a big step forward."
The payments are settled through the National Clearing House Association, of Dallas.
John Lettko, the chairman and chief executive of Viewpointe, said that First Horizon, of Memphis, was paired with SunTrust, of Atlanta, because the two banks were the first ones ready to use the archive's image settlement system. The other bank-owners - Bank of America Corp., BB&T Corp., HSBC Bank USA, J.P. Morgan Chase & Co., National City Corp., U.S. Bancorp, Zions Bancorp., and Bank of Montreal's Harris Bank - have all been paired up according to their degrees of readiness.
Several of them will be settling transactions with images next quarter, and all of them will be doing so by the end of the second quarter, he said.
Viewpointe's archive uses a different format than the other networks. The Clearing House and Endpoint Exchange systems are image exchanges - files are sent to the receiving bank, in much the same way people send e-mail messages to each other. In contrast, the Viewpointe banks all use a single shared archive and clear payments by sharing the specific locations of the needed image files and granting each other permission to view them. This model is more akin to a librarian giving patrons a call number in order to help them find a desired book on a shelf.
Mr. Lettko said that the image-sharing system has been easier to set up than an exchange. "The items really aren't moving, while exchanging images adds some degree of complexity."
Lenora Thompson, the group vice president for banking services at SunTrust, said the banks store all their check images - including both the checks their customers write and the checks they deposit - in the archive.
However, the banks are settling transactions electronically for only some of their routing and transit numbers, she said. This lets the banks control the volume initially, but it still means they must be able to process electronically every type of transaction for any customer whose accounts are included in those routing codes and who deposits a check drawn on the other bank.
Ms. Thompson stressed that this is not a pilot test, but full-production check processing for those select routing numbers, and that the banks will begin increasing their volume by adding more routing numbers early next year.
To date they have settled "a few thousand" checks through the Viewpointe sharing system, she said.
The more significant increase in volume will come when more banks start using the system.
Mr. Vaughan said that the largest cash letters - the summary of check payments that accompanies a batch of paper checks that are hauled to another bank - that he sends out daily usually go to B of A and JPMorgan Chase. Once those banks start using the Viewpointe system, he will be able clear checks electronically instead, and he could save at least "a few cents per item."
He expects savings from lower transportation costs, as well as from faster, less labor-intensive processing. "It adds up," he said.
However, Ms. Thompson said that the cost savings will not come for some time, because the banks are operating two parallel processing systems, and their image clearing volume is "an insignificant amount."
Mr. Lettko said that this year the 10 Viewpointe banks will store about 20 billion checks, including about 12 billion transit ones, in the archive. Last week the Federal Reserve banks said that 36.7 billion checks, including 28 billion transit ones, were written in 2003, so it is clear that the Viewpointe banks account for at least 55% of the nation's check volume.
According to Mr. Lettko, the Viewpointe banks plan to start slowly and gradually increase their volume; he hopes they are settling at least half their checks through the image archive within 18 months. "I think it will be sometime in mid-2006 before the industry is settling 50% or more of its volume with some kind of image system, but I think we can get there sooner" at Viewpointe.
The Clearing House said in January that eight of its bank-owners - Wells Fargo & Co., KeyCorp, Bank One Corp., JPMorgan Chase, B of A, U.S. Bank, Wachovia Corp., and Comerica Corp. - would be using its image exchange system by this fall. Two of the banks, Key and JPMorgan Chase, began a pilot test program in August and are continuing to settle a limited number of payments through the system. However, so far no other banks have announced plans to join that effort.
Mr. Vaughan said that beyond cost savings, moving to electronic check processing could have significant long-term benefits for First Horizon. He noted that banks that can zap check images between branches and check processing centers, or between branches and image settlement systems, could avoid building and maintaining costly check processing centers in every region they serve.
In addition, banks can now court corporate customers in areas where the banks have few or no branches, because the customers can now convert the checks they receive into images and transmit them directly to the bank.
Mr. Vaughan said that First Horizon has been working towards image settlement since the bank joined Viewpointe in 2001, and that he considers the technology to be a critical part of the bank's future strategy.
"Now I can move more quickly into new markets," he said. "This can level the playing field between big banks and smaller banks."
