BROOKFIELD, Wis. – When image exchange is in full bloom, paper items will be a thing of the past, but the industry isn't there yet by a long shot.
In fact, according to Fiserv, the largest nonbank processor of checks, the volume of paper IRDs, or substitute checks, is increasing dramatically.
"Institutions are starting to use the substitute check as a way to return checks and statements," said Steve Ward, division president in Fiserv's item processing group.
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Ward said this is especially true on the business side. While consumers may not necessarily require their institution to return their cleared checks, it's a different story for businesses. Ward said small businesses count on returned checks for their accounting process. "If clients want their checks back and are willing to pay for that, institutions are looking and saying why not do it, and the substitute check is a vehicle that allows them to do it," said Ward. Substitute checks save institutions the time of having to sort through paper items – they can find images quickly and have their processor print substitute checks. Ward says Fiserv is now doing about a million substitute checks a day, and volume seems to be doubling each month. "We charge a unit price. That price varies depending on how much time you give us to do it. Whether it's two hours, four hours or six hours, that's going to affect our process," he said.
He noted that credit unions, which operate in a truncated environment and traditionally don't return share drafts to members, can't sing that song for their business members. "Credit unions looking to attract more business types of accounts will see a desire of business accounts to get their checks back," said Ward.
Fiserv processes about four billion items a year. It operates over 50 capture and distribution sites in the U.S. for 1,600 clients. Next to the Fed and some large banks, it is the largest item processor in the country. It also serves three of the largest banks in Australia.
Ward said the "image" of image exchange is changing. "Image exchange is in the eye of the beholder. It could mean the institution of first deposit converts an item to image, sends the image forward. On the receiving end, the paying institution receives the image and posts it. That's end-to-end image exchange. Now we're seeing more institutions sending the image file and not caring too much what the receiving institution does," said Ward.
That's because a lot of the value of image exchange is in the forward transaction. "If I send images to the Fed and they are clearing it for me, I don't care if they convert it to an IRD, I just want the funds available. A lot of the value is on the send side. I save on my courier costs. The one who pays for check clearing is the receiving institution," he said.
The big payoff on the send side is transportation costs. "Whether you send 50,000 checks on a plane or 5,000, that plane costs the same. The less volume, the unit cost is going to go up," said Ward.
This fact has diminished some of the urgency for institutions to develop their receiving infrastructure, said Ward. In fact, of the 39,000 institutions in the U.S., only 234 can receive items electronically.
One other interesting dynamic of image exchange is increase cooperation among all types of institutions and processors, said Ward. "We're seeing greater collaboration between the various players in terms of I send you image files, you send me image files. We have a direct connect with Viewpoint, so we don't have to establish a network or connectivity multiple times," said Ward. Viewpoint is the exchange network owned by the largest banks in the nation.
So what are the concerns once image exchange is more pronounced? Ward said there are new avenues of fraud. "There aren't complete standards yet in terms of making it completely seamless. It's an evolution just like credit cards, ATMs and everything else. Those things will evolve, they don't happen overnight.
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