The banking industry has not reached a consensus on whether to store check image files in-house or in a shared archive, and the issue is becoming an increasingly front-burner question as more banks start using digital images to clear checks.
Many banking companies have already made substantial investments in one of the two models and may be loath to abandon their positions, but it is also becoming clear that they must take into consideration the choices made by their trading partners.
Advocates of the sharing model point to the economies of scale that come with a shared facility, while in-house proponents say controlling the technology can be a strategic asset.
Bank of America Corp. was one of the companies (along with JPMorgan Chase & Co., and International Business Machines Corp.) that founded Viewpointe Archive Services LLC in November 2000. Viewpointe now stores checks for 11 major banking companies, and the archive company claims it holds as much as 70% of the checks written in the United States.
During a panel discussion last week at the Bank Administration Institute’s 2005 TransPay conference in Orlando, John Feldman, B of A’s image executive for transaction services, argued that the sheer mass of the Viewpointe archive will improve efficiencies as the industry shifts to image-based check clearing.
Under Viewpointe’s shared archive model, banks can clear checks by simply directing each other to the location of image files within the archive.
However, David Harris, a vice president in the technology operation of Fifth Third Bancorp of Cincinnati, advocated for the in-house model. “I think there is a value proposition for keeping … [an archive] in-house and maintaining it as the strategic asset that it is,” he said.
The geography of the trading partners also plays a role, Mr. Harris said. Fifth Third’s trading volume is mostly in the Midwest, while many of Viewpointe’s customers are on the coasts, he said.
Even if a single shared archive holds 50% of the checks in the country, “it may not be the 50% that you care about,” he said. “I’m going to clear my items where my deadlines are best and my costs are best.”
He also disagreed with the notion that shared archives would necessarily be the cheaper alternative. “The pressure is going to be on pricing, regardless of the exchange venue.”
Advocates of the shared approach argued that its variable pricing is more cost efficient, because banks pay only for the images they transmit.
In addition, it can be less expensive for individual banks to use a shared archive than it would be to maintain and upgrade the systems themselves, Mr. Feldman said. “When the technology needs to be refreshed, it’s not on Bank of America’s dime.”
But plunging technology prices also have brought in-house capabilities to even modest-size banking companies.
The $2.7 billion-asset Intrust Financial Corp. of Wichita adopted digital imaging in 1997. “It’s a great benefit for us to have our image archive in-house,” said Jim Simon, Intrust’s vice president of operations.
When Intrust launched its imaging project, “it was kind of hard to justify, but we thought it was worth it,” Mr. Simon said. Since then Intrust has changed its systems four different times and has used magneto-optical drives, digital tape, and DVD jukeboxes. Last summer it put its entire archive online, as a result of a five-terabyte storage system upgrade that cost just $30,000, he said.
Intrust also retains several years’ worth of return items, and access to such information helps it calculate the profitability of individual accounts, Mr. Simon said. “We can score customers based on their history.”
Internal imaging systems can also be used for items besides checks, he said. Intrust captures images of the deposit envelopes from automated teller machines, so it does not need to retain the originals, and it maintains an archive for documents such as account signature cards and loan applications.
Alenka Grealish, the manager of the banking group at the Boston research and consulting firm Celent Communications LLC, said sharing probably will gain ground in the future, because issues such as image quality and formats are being resolved.
“There’s nothing to compete on here. It’s a matter of haggling over legalities and formalities,” she said in an interview.
The variable-cost approach of sharing probably makes more sense in the long run, because check volumes are declining, but “with storage costs dropping, both players can win,” Ms. Grealish said.
