NEW ORLEANS - A pair of Fiserv Inc. image-exchange agreements announced at the Bank Administration Institute's TransPay Conference - one with Viewpointe Archive Services LLC, the other with Small Value Payments Co. - are filling in some of the last remaining blanks in the effort to develop a national check image exchange infrastructure.
"This is putting all the pieces together," said Viewpointe chief executive officer John Lettko.
With Viewpointe representing nine of the largest banks in the country, SVPCo accounting for 20 more major banks, and Fiserv the check processor for about 1,600 mostly small and midsize banks, these deals constitute a driving force in image exchange. Mr. Lettko said he wants to pursue more such agreements.
But even as the players involved prepare to begin electronic check clearing, some are looking further down the road at alternative methods of posting checks electronically that do not require moving the image.
"We have to get a critical mass in order to drive check exchange," said Hank Farrar, the president and chief operating officer of New York-based SVPCo. "This is really a big deal in terms of creating a national payments system. Image is really at the cornerstone of what we're trying to do."
SVPCo is putting together a national network for the exchange of check images. While other such networks exist, notably including Endpoint Exchange and the Federal Reserve, Mr. Farrar said they generally have lower capacity than the one he is building. "We are investing heavily to create an industrial-strength network that can handle not hundreds of thousands of image files, but billions."
That network is expected to be in the trial phase by the end of the year and go live in the first quarter of 2004. That puts it on roughly the same schedule as the Check Clearing Act for the 21st Century, often called Check21, which is expected to be approved by Congress this year and to give a big boost to the idea of image exchange by granting digital check images the same legal weight as paper checks.
SVPCo already has an agreement to be the conduit network between Viewpointe and any other banks that need to exchange images with the nine Viewpointe members. The common Viewpointe archive lets its members share images for clearing, and some of the participants have piloted electronic clearing, saying they needed a way to connect with the rest of nation's banks. The two new agreements make SVPCo that much stronger in image transfer and settlement.
"If we are going to start doing image exchange, then everybody needs to be able to play. We can't have just the 20 biggest banks exchanging among themselves," said Stephen Ward, an executive vice president with Fiserv's item processing outsourcing and technology services unit, in Brookfield, Wis. "SVPCo links everything together."
While the exchange agreements are falling into place, some executives are looking ahead, and questioning whether electronic clearing needs image exchange. Mr. Ward speculated that the Viewpointe model could get wider use.
The Viewpointe archive is used by all of its members. When they begin clearing checks electronically, these banks will not actually need to transmit the image between them. Instead, one bank can grant permission to another to look into the shared database and provide an index of where to find individual files. This means banks could see the images without actually moving them, and checks could be cleared based primarily on the electronic check presentment (ECP) information file, which is much smaller than an image file.
Such a model is somewhat comparable to the difference between e-mailing a check image and accessing the same image from a Web site. In the first case the file is physically transmitted from place to place; in the second, a bank simply looks at the image stored on a remote server but may not need to retrieve it.
This subtle difference could translate to faster check clearing, because only the ECP would have to be transmitted. Plus, fewer image files would have to be stored in multiple archives.
Mr. Ward suggested that different archives could clear transactions between their members by providing an index of check image locations and granting access to view those pictures.
"Fiserv and Viewpointe are looking at providing access to each other," he said. "I think that's where we are going eventually."
He noted that paper checks must be moved as part of their clearing process, making it seem natural for image files to be zapped from place to place as well. But this practice is something of an anachronism; technology now makes it possible to clear checks without moving the image files.
Mr. Farrar called this technique "image on demand," because the image could be transmitted when a bank requests it, but be said it would not be necessary to do so. However, while this practice is technologically possible, he noted that it could entail regulatory hurdles. "A lot of things would need to change regarding banks' business practices," he said.
Mr. Lettko said the barriers to implementing image-on-demand are more practical than technological.
"From the technology perspective, it's not that difficult. However, that's where it stops," he said. He expressed concern over quality and responsiveness, and said he would be leery about depending on other companies. "If we extend our model and start to share our indexes, it assumes that all archives function similarly, and they don't."
"We could well be getting at something like that," said Steve Ledford, the president of Global Concepts, a research firm based in Atlanta. Image-on-demand is possible, he said, but it is only one possible format for electronic clearing. "Whether archives end up linking to each other or banks continue to move images, I think the market will eventually decide what is most effective."
Mr. Farrar conceded that image-on-demand could make the network he is building less necessary if it means fewer image files must be transmitted, but he said the practice probably will not be implemented soon.
"I don't see it happening for a long time," he said. "We see banks moving a lot of images for the foreseeable future."
