Unisys Replacing Key Component Of Its System for Check Imaging

Unisys Corp. is replacing a critical piece of equipment for its check-imaging system because it is not meeting specifications, bankers installing the machines said.

Unexpected problems with hardware that encodes dollar amounts and other data onto checks surfaced a few months ago.

So far the problems have not slowed the testing of the entire image system for check processing, which consists of computers, software, workstations, and encoding equipment that must all work together. The system costs from $2 million to $40 million, depending on the size of the bank.

But the equipment must be replaced, bankers said, in order for their institutions to realize the significant cost savings promised by image technology.

The banks involved are in an early-install program with Unisys. They include Huntington Bank, Columbus, Ohio; Northern Trust Co., Chicago; Comerica Bank, Detroit; Signet Bank, Richmond, Va.; Barnett Banks, Jacksonville, Fla.; and Chase Manhattan Bank, New York. The problems first surfaced at Comerica.

No Charge for Replacements

Officials at Unisys say they expect to replace the machines -- so-called high-speed power encoders -- by October. The banks will receive the new equipment free of charge.

"This is not going to affect the bank's implementation schedules at all," said S.D. Sullivan, program general manager at Unisys. "Frequently when a new product comes out there are problems that need to be corrected."

Savings from Reduced Labor

The power encoder is a critical element of any check-image system, because it replaces the need for checks to be hand-fed into a machine and encoded by operators. The reduction in labor costs accounts for a large percentage of the total savings that image technology can bring to a bank's check-processing operations.

The problems are particularly irksome for Barnett Bank, which processes more checks than most of the other banks installing Unisys equipment. "We're having intense discussions with Unisys," said one Barnett banker, who asked not to be identified.

Importance of Power Encoder

The problems involve several features of the power encoders, which are built in Scotland. Stacks of checks are placed in "pockets" of the encoder. It reads and matches a check's magnetic ink characters with check images that have been captured and stored in a computer, then encodes the dollar amount and other sorting codes.

Bankers say the encoders' pockets are too small and can't handle batches of 350 to 400 checks efficiently. The feeder mechanism that moves checks through the system also needs to be adjusted, they said.

Problems Expected

Experts familiar with the problems with the Unisys equipment say that while they are significant, they do not threaten the viability of the entire image system.

"These types of problems are expected," said Chuck McDonough, an expert in image technology and consultant with Andersen Consulting. "If you were running into major reliability problems with the system, with computer [circuit] boards blowing every hour, that would be a major setback. This is relatively minor."

New Technology Carries Risks

The snag in the Unisys equipment, and the long delays experienced by banks installing check-image systems from International Business Machines Corp., illustrate that being on the leading edge of a new technology carries an element of risk.

Banks that have taken the plunge into check-imaging systems have already sunk hundreds of thousands if not millions of dollars in computers, software, employee training, and office remodeling.

Now they are anxious to begin seeing payoffs for their investments.

"Some of the banks are trying to realize some payback this year," said one banker in the early-install program. "After you've made the outlays, senior management is putting the pressure on to cut costs, especially in this [economic] environment."

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