Q&A: Now is the Time for Check Image Exchange
A: It’s been a breakthrough year for image exchange in the US. A few examples of the growth we’ve seen tell the story. In June 2007, the SVPCO Image Payments Network operated by The Clearing House Payments Company exchanged 218.2 million items totalling US$390bn in value. Compared to a year ago, average monthly items are up 286% and monthly dollar value is up 146%. For all of 2007, we’re expecting to exchange more than more than 2 billion images. By contrast, in 2006, we exchanged 747 million images and we did 52 million in 2005. The growth has been extraordinary. Another good indicator of growth comes from the Electronic Check Clearing House Organization (ECCHO). Last year, ECCHO said that 25% of all institutions were doing some form of image exchange. That figure is clearly higher today.
A: Paper checks are starting to decline noticeably because a growing number of institutions are moving paper check volume to image exchange. However, there are still 28 billion checks being written and processed annually. In what we consider a historic shift, The Clearing House reported in May that average daily image items and dollar value exceeded paper check items and dollar value for the first time in the company’s more than 150-year history. The sun is beginning to set on paper checks.
A: Most of the largest banks in the US have been participating in the Image Payments Network for about a year or more. The larger banks include Bank of America, The Bank of New York, BB&T, Comerica Bank, Fifth Third Bank, First Citizens Bank, HSBC Bank, JPMorgan Chase Bank, KeyBank, LaSalle Bank, M&T Bank, National City Bank, PNC Bank, Union Bank of California, US Bank, Wachovia Bank, andWells Fargo Bank.
A: Over the past six months, a growing number of small to mid-tier institutions – and even credit unions – have begun participating in the network. That’s encouraging for the entire industry. The Bank of Stockton (California), Members United Corporate Federal Credit Union (Illinois), Sterling National Bank (New York), and Huntington National Bank (Ohio) and have all connected to the Image Payments Network in the past year. More are on the way.
A: The Federal Reserve and Endpoint Exchange both have links to the Image Payments Network. The Fed’s volume has been growing steadily since last year. In June, the Fed exchanged more than 40 million image items through the Image Payments Network. In May, Endpoint Exchange, which has primarily served independent and mid-tier institutions, also connected to the Image Payments Network. With both the Federal Reserve and Endpoint Exchange now participating, the Image Payments Network can now reach more than 10,000 endpoints. For banks of all sizes, image exchange is readily available and easy to implement.
A: From a strategic standpoint, image exchange enables institutions to fundamentally streamline the processing of paper checks. By sending images electronically instead of moving the physical paper checks over great distances, institutions can reduce transportation costs, decrease payments risk, and reduce float. Louise Roseman, director of operations and payments systems, Federal Reserve board of governors, nicely summed up the importance of implementing image exchange: ‘No bank should risk being left behind as the evolution unfolds’.
A: Operators have been increasing prices for paper checks by an average of 5-6% per year. Everyone has always known that check processing is a scale business. The lower the volume, the higher the cost. No bank wants to be the last one transporting paper checks because the cost would be astronomical. It’s like a game of musical chairs, except you don’t want to have that last seat!
A: IRDs are a short-term solution. With IRDs, a check image is transmitted electronically and is then printed close to the receiving institution and processed through traditional check sorters. There is a benefit of lower transportation costs and shorter processing times, but the same expensive check infrastructure is in place. We recommend going directly to full image exchange whenever possible. Over time, image exchange will deliver greater savings and efficiencies.
A: While it’s true that electronic payments are growing each year, it will be a long time before image exchange volume starts decreasing. The fact is that there are still so many checks being written and processed today. Unlike consumers, for example, most businesses still prefer paper checks to electronic payments.
A: SVPCO managers prepare a business case and work with that financial institution to determine the most cost effective on-ramp to the network. Then we jointly decide which of our three network connections is best. For the largest institutions, the SVPCO Distributed Traffic Agent (DTA) is the most effective way to send and receive bulk image files. An institution’s existing item processing system communicates through the DTA into the peer-to-peer network without the going through a central processing system. The DTA is owned by your financial institution and maintained by The Clearing House. For institutions with lower volumes, the SVPCO Gateway DTA offers a low-cost connection to the network. The SVPCO Gateway processes an institution’s image exchange files through that institution’s system. That system then delivers a file with cash letters to a single bank or a file with individual cash letters to multiple banks using our peer-to-peer network. The third way to connect to the Image Payments Network is through a correspondent bank or third-party processor. These providers are linked to aggregate volume sent to and from the network using a DTA provided by The Clearing House. In essence, we’ll do business any way an institution wants to fit their needs.
Excerpt from SVPCO’s white paper, Compelling Reasons To Do Image Exchange.