Instead of investing in image exchange technology themselves, four Montana banks have outsourced their check processing to Fiserv Inc. and sold the vendor much of the equipment in their shared processing center.
Many banks are expected to face similar choices, as people write fewer checks and the use of image exchange increases.
Kevin Clark, the president and chief executive of the $408 million-asset Heritage Bank of Great Falls and the CEO of its parent company, United Financial Corp. of Great Falls, said that outsourcing the item processing would accelerate his company's adoption of image-based processing.
"We intend to roll out remote capture in some of our locations," Mr. Clark said, starting in the next 60 days at branches in Billings, in south central Montana, and Glendive, on the eastern edge of the state, near North Dakota. "They're pretty remote."
The changing economics of check processing prompted Heritage and its three partners in the center - Three Rivers Bank of Montana, an $88 million-asset unit of Great Northern Bancshares Inc. in Kalispell; the $98 million-asset Valley Bancshares Inc. of Kalispell; and the $223 million-asset First National Bancorp Inc. of Missoula - to reexamine their shared operations last year.
For the past decade eight Montana banks had cleared their checks through the shared data center in Helena, Mr. Clark said, but mergers and other factors cut the number of participants to four by last year, and the center became an increasingly expensive proposition for the remaining users. "You have to do a certain volume to make those data centers work."
Besides the joint processing center, the four banks had something else in common - they outsource their core processing to Fiserv's Information Technology Inc.
The banks started talking with the Brookfield, Wis., vendor in June of last year about taking over their item processing, and they reached an agreement in December, Mr. Clark said. In addition to buying much of the center's equipment, Fiserv hired three-quarters of its staff, moving them to a different building in Helena, where it began clearing items in late April.
Stephen J. Ward, the division president of market development and product delivery in Fiserv's item processing group, said the company hopes to use the site to expand in Montana.
"With the base of the four banks there, that gave us a springboard to open an operation there," he said. "We would like to sell more business into that facility."
One advantage of the new arrangement is access to the Fiserv Clearing Network, which enables participants to reduce costs by settling checks within the network, Mr. Ward said. "That became a logical extension of the services we are offering there."
Mr. Clark said Heritage Bank began clearing checks through the Fiserv Clearing Network when the new site went live in April.
Though he said the shift has not generated any savings, his short-term goal is more modest. "My hope is to remain even, compared to what we had when we ran our own data center. I think we're pretty close to that."
Bob Meara, a senior analyst at the Boston research and consulting firm Celent LLC, said more banks around the country are likely to face similar decisions as declining check volume raises their unit costs. "It's a scale game," he said.
According to Mr. Meara, Fiserv has many of the pieces that banks need to begin clearing checks electronically: an established system for clearing paper checks, connections to intermediaries such as the Federal Reserve banks and Viewpointe Archive Services LLC, a nationwide image replacement document printing network, and the growing Fiserv Clearing Network.
"All that gives them the ability to react quickly over time, as the economics change, as banks go from paper to electronic, and have a pretty good residual income," he said.
