SAN DIMAS, Calif. – Technology isn’t always the real hurdle in what appear to be pretty sophisticated projects. Case in point – the check image check exchange pilot in the Federal Reserve’s West Coast-based 12th District. Western Corporate Federal Credit Union is one of the participants in the pilot. “Although there has been a lot of discussion, it’s still a learning process right now,” says Kenneth Shoga, WesCorp SVP of correspondent services and e-commerce. “The technology is always a relatively easy thing to put together. The real difficulty is trying to integrate that with the support and the people in how those processes are going to actually be applied. We want to provide insight into the impact this (check image exchange) is going to have on credit unions and other financial institutions, and how we can make it more efficient.” Participants also want to learn whether the benefits of check image exchange justify the cost. Shoga notes as check volume declines in the future, even more efficiency will be demanded than is needed today. Five or 10 years from now, after everyone has invested millions of dollars in equipment and education, will the effort still be sustainable? That’s one of the questions the pilot project, which is still getting underway, hopes to answer. “There’s a gut belief that when you reduce your costs of transportation and storage and all those various pieces of the pie, there would be some benefit,” Shoga says. “But when you take it down to the individual item level, the margins are extremely thin. The Federal Reserve indicated their costs are rising. Just the cost of imaging is an extremely sensitive proposition.” He notes a number of large financial institutions now entering into check imaging realize it is important to be part of this. However, it took a lot of time for them to make that decision. Looking specifically at credit unions, there are number of corporates and other vendors as well as individual credit unions processing checks. Can and should they continue to invest in such a commodity transaction? The transaction environment is changing, with the volume of pure electronic transactions growing. Payment systems are converging. Where should credit unions place their technology investments? Shoga believes small credit unions will generally work with their corporates or leagues or whoever is running their item processing to pursue answers. “I think the industry needs to find a way to work together,” he says. “The concept of cooperation and the ability to aggregate volume to help manage costs is a prime candidate for that type of environment. There is no real advantage you can show to your members just because you do it on your own.” With this in mind, Shoga notes, banks have put together a consortium called Viewpoint. That idea is being discussed in other financial services environments. There may be ways to save money by working together, but “there is usually a cost when you try to have it all in one place.” “We’re weighing all those factors. Just because the banks do it doesn’t necessarily mean it’s right. But the concept of trying to leverage volume is the key. Credit unions and corporates each need to focus on their core competencies,” Shoga says. Truncation is a separate although related issue. It’s accepted practice for credit unions not to return checks to their members. Recently the Federal Reserve has spent a great deal of time lobbying Washington politicians for passage of the proposed Check Truncation Act. Shoga expects that legislation will pass, perhaps sometime in 2003 or 2004. Implementation will require still more time. Shoga notes truncation got pushed into forefront in the wake of terrorist attacks Sept. 11, 2001, when the grounding of the nation’s airlines severely affected the ability to transport checks. The proposed law provides a framework that would allow someone to use images of checks to clear items. When needed, a substitute check can be provided that offers a check-size image of the front and back of the check that has been imaged and retained in the archives of the financial institution of first deposit. In a pure image exchange environment, Shoga adds, no substitute checks are required. “The main thing is credit unions need to start thinking about this and understand we as well as other corporates are looking at these things,” Shoga says. “We happen to be more involved in a pilot sense than some of the others, but we do share our information. We are looking to find ways to partner with credit unions and other corporates to make sure credit unions are prepared to take on this evolution in payments. We need to start talking about how we can do these things together. Just us doing this alone is not going to help the entire industry.” -

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