In Wake of Check 21, WesCorp Buys Imaging, Digital Communications Specialists
SAN DIMAS, Calif. -- Check processing has long been a 'raison d'etre' for corporate credit unions.
Check 21 has changed that business dramatically in rapid fashion and, in order to "continue to be relevant," the biggest of the corporates has bought a stake in two well-known names in electronic imaging and paperless innovation in the credit union space.
WesCorp is now a part owner of both California-based Ensenta Corp., a specialist in digital deposits, image cash letters and straight-through deposit processing in the shared branching and ATM channels, and of Digital Mailer, a Virginia-based pioneer in e-statements and e-alerts.
"These are strategic investments that recognize the evolution, really the revolution, of payments processing and settlement," said Tony Kitt, the $30 billion corporate's senior vice president of payment systems. "These are more than just re-seller arrangements. We're joined at the hip."
Kitt declined to say how much of each company WesCorp now owns but said the purchases weren't just to add revenue stream. The big corporate now has a seat on the board of each company and can be more deeply involved in product development as the shift from paper to digital gains ever more traction.
"In addition to the investment products we're known for, we're essentially a payments and settlement house," Kitt said. "Let's face it. The paper check processing business is on the decline. If we're to continue to be relevant to the system, we've got to be a part of this transition."
He said the two companies "have the kind of entrepreneurial spirit we're looking for as we work to provide credit unions the ability to serve every payment channel there is out there, whether it be mobile payments, online banking, image exchange...we need to be involved in all these spaces, to provide all these choices. This will help us do that."
WesCorp already has a business relationship with Ensenta, including an arrangement with FSCC that has allowed image processing to be expanded to self-service branch kiosks. Ensenta, which provides the technology backbone for FSCC's image-deposit network at more than 2,000 7-Eleven stores, also has moved into home and small business item capture and Web-based deposit processing.
"The whole industry is moving from a production environment with big machines sorting checks -- moving all that paper from point to point -- to a more electronic environment, and with what all that means from imaging to processing. We think Ensenta is one company that has already cracked that nut," Kitt said.
"We think they can serve as a kind of [research and development] arm for WesCorp in the payments business. We're a big organization and don't have the same kind of entrepreneurial spirit that a company like Ensenta has. They can get products to market faster than we can, and with the same benefits."
As for Digital Mailer, Kitt said that while WesCorp is not currently on that company's list of more than 120 credit union clients "one of the things we're looking at is how we can help them extend their product offerings and how we can use their technology to improve our own digital presence."
"For instance, credit unions right now have to pay their home banking providers to play back their own check images to their members. Well, (Digital Mailer founder) Ron (Daly) has a great product that we plan to offer that you can hook on to your home banking site with some integration with our large image archive," Kitt said. "That would be a real value-add to our credit unions and their members."
The WesCorp executive said both companies "are on the leading edge of the things we need to do in the future that leverages our core competencies while we work to find those new frontiers that credit unions need to be going after, including business services and digital communications," Kitt said.
Change is rapid, he said, and credit unions need to be able to respond, especially in the wake of Check 21 and the paperless payment processing revolution. Just how rapid that change has come is reflected in the corporate's own experience this year.
WesCorp currently has 1,150 member credit unions, about 800 of whom use the corporate for check processing. Kitt said that since the beginning of 2007 its inclearing processing from credit union members has grown from about 35% imaging to 75% by year's end. On the deposit side, about 20% of WesCorp processing was originated as imaging at the beginning of 2007 and that's now almost 50%.
"These are dramatic increases and it's all brought about by Check 21," Kitt said.
In addition to credit unions imaging checks at the teller line or in the back office, members themselves are writing 10% fewer checks each year, Kitt said, as bill pay, debit cards and other payment channels gain favor.
But the paper check is not gone yet, especially in the business world, where paper trails are still highly valued. Kitt said the move to imaging in the commercial world compared to the consumer side "is lagging, but they're catching up."
"Checks have been the dominant payment vehicle for many, many years, and they are still a very large part of the payment scene overall," the WesCorp payments chief adds. "But there are a lot of other channels now, and wherever the biggest splash is happening, whether it's stored value cards, direct deposit, ACH kinds of transactions, we have to be prepared for these channels, and so do our member credit unions, and that's why we're doing what we're doing with companies like Ensenta and Digital Mailer."
"From an operational standpoint, we expect to learn from these companies," Kitt said. "From a product standing we think they will help us improve and increase the suite of products we offer and help us with our own development efforts."
"Certainly, we expect to leverage the talents they have. We need to make these kinds of investments if we expect to continue to be a dominant payments provider among credit unions."
"And being the dominant provider...that's our goal."