Content area
"We're not here to sell anything, but to educate you on the benefits of check processing," said Patrick Donahue, vice president of business development for the Philadelphia Fed, shortly after handing out a packet that included a price list for services the Philadelphia Fed can provide banking customers.
Representatives of the Fed argue it makes sense to handle a paper check as few times as possible. As long as the Fed is processing information from checks as part of its normal responsibilities, the argument goes, it should capture the image for banks' use at the same time.
Meanwhile, the possibility of the Fed's withdrawal from the check processing and automated clearing house (ACH) business looms. While They're There... "The idea we're working on is disassociating physical check processing from account management," said Blake Prichard, senior vice president of the Philadelphia Fed. "Ideally, these banks won't have to have check sorters in the future. They will process the account information, but not the actual check. We're already collecting the information from checks, so it's not much of a step to capture the image at the same time." Objections To The Fed Not everyone is enamored with the Fed's venture. Rep. Carolyn Maloney (D-N.Y.) says the Fed is unfairly using taxpayer money to subsidize its check processing services. She avers the Fed charges a lower price for imaging than private competition and makes up the difference with profits from other areas (IPR, Aug. 14, p. 1). Prichard answers the charge by saying critics don't see the full picture.
KING OF PRUSSIA, Pa. - The Federal Reserve Bank is making an aggressive play to become the check image processor for banks and other financial institutions in this region and across the country - a move that could signal trouble for its private competitors.
The Federal Reserve Bank of Philadelphia hosted about 100 representatives from more than 30 banks - ranging from community banks to large financial institutions - at its "Check Image Expo" on Oct. 27 to show potential customers how imaging can cut costs and increase revenue.
Other Fed regions already have taken their shows on the road, and many more are lined up to follow suit.
"We're not here to sell anything, but to educate you on the benefits of check processing," said Patrick Donahue, vice president of business development for the Philadelphia Fed, shortly after handing out a packet that included a price list for services the Philadelphia Fed can provide banking customers.
Representatives of the Fed argue it makes sense to handle a paper check as few times as possible. As long as the Fed is processing information from checks as part of its normal responsibilities, the argument goes, it should capture the image for banks' use at the same time.
Meanwhile, the possibility of the Fed's withdrawal from the check processing and automated clearing house (ACH) business looms. While They're There... "The idea we're working on is disassociating physical check processing from account management," said Blake Prichard, senior vice president of the Philadelphia Fed. "Ideally, these banks won't have to have check sorters in the future. They will process the account information, but not the actual check. We're already collecting the information from checks, so it's not much of a step to capture the image at the same time." Objections To The Fed Not everyone is enamored with the Fed's venture. Rep. Carolyn Maloney (D-N.Y.) says the Fed is unfairly using taxpayer money to subsidize its check processing services. She avers the Fed charges a lower price for imaging than private competition and makes up the difference with profits from other areas (IPR, Aug. 14, p. 1). Prichard answers the charge by saying critics don't see the full picture.
The Fed's service captures images and stores them on transportable media, which is delivered to the appropriate financial institution.
Regular service includes image delivery the next day and costs $.007 cents per item. The premium service makes images available on the day images are captured for $.009 cents per image.
Customers can receive a file containing images of all items or only a selected portion based on predefined parameters, such as dollar amount or a range of account numbers.
Banks that take the Fed up on its offer will still need software on site to interpret the images sent by the Fed.
To fill the need for software, seven software vendors and consultants were on hand at the Check Image Expo to work with the Fed. Not surprisingly, the vendors that were tacitly endorsed by the Fed and are compatible with Fed systems said they support the Fed's participation in the image processing game.
"If I could put in imaging without a transport, then I'm all for it," says Jack Schlosser, a Rochester Hills, Mich.-based imaging consultant with Macrosoft. "A bank can have all the function of imaging, but they don't have to put the capital investment into a transport. It's a cost-effective system for community banks. It's a truly affordable solution."
Making imaging affordable for all banks is only a step toward the Fed's larger goal of broad-based electronic check presentment, Prichard says. The Fed would like to see 100 percent of all checks handled using electronic check presentment, he says.
"I think that check clearing in the United States is incredibly efficient," Prichard says. "But it's still nowhere near as efficient as other payment mechanisms."
If regular checks for recurring amounts automatically are deducted from an account, "what's left will be more efficient," he says.
In the meantime, the Fed is working to remove steps from check processing. Sign-Up Lines Are Short The Philadelphia Fed has picked up only one customer, but IPR has learned that customer is financial giant Chase Manhattan Bank. Representatives of other banks at the Check Image Expo would not speak on the record about their interest in joining with the Fed for fear of tipping their hands to competitors.
A representative from a Pennsylvania-based bank summed up the opinions of many attendees.
"I am definitely interested in what they have to say and it looks like it makes sense, but I don't think we want to be the second - or even the third, fourth or fifth - bank to try this out," he said. "We'll wait and see how it works for other banks first." The Fed's Future Meanwhile, the Washington-based Fed's Committee on the Federal Reserve in the Payments Mechanism is coming out with its recommendations to the Fed's Board of Governors before Jan.
Five scenarios are being considered and - with the help of public comment in recent months - the Fed will decide if it should remain an imaging player or give up its spot for private organizations to step to the fore.
The five scenarios are: *Liquidity - the Fed would withdraw from check collection and ACH services; *Privatization - The Fed would privatize its check collection and ACH operations under a newly chartered special-purpose "clearing bank;" *Continuity and Access - The Fed would continue to provide check collection and ACH services, but only to assure universal access for depository institutions; *Promoting Efficiency - The Fed would use its operational presence in the check collection and ACH markets to enhance the efficiency of the interbank payments system and foster innovation by commercial providers; and *Leading Toward Electronic Payments - The Fed would promote the movement to an electronic-based payments system. While Fed officials aren't commenting, Burt Ely, president of the McLean, Va.-based consultancy Ely & Co., predicts a mix of liquidity and privatization. (Patrick Donahue, Federal Reserve Bank of Philadelphia, 215/574-3896; Burt Ely, Ely & Co., 703/836-4101; Blake Prichard, Federal Reserve Bank of Philadelphia, 215/574-3767; Jack Schlosser, Macrosoft, 810/853-5353.) How To Successfully Implement Imaging KING OF PRUSSIA, Pa. - Very few customers walk into a bank demanding check imaging, said Greg Schratwieser, president of Bethesda, Md.-based International Consulting Inc. But the proper implementation of a check imaging system can garner an acceptance rate among customers of more than 99 percent. Conversely, a poor implementation can bring a 50 percent acceptance and ruin a business case.
Schratwieser shared some tips with bank representatives attending the "Check Image Expo" put on by the Federal Reserve Bank of Philadelphia on Oct. 27. *Never announce that check imaging is coming. Send the image statements with the checks for the first month only. "The best advertising a customer will see is their own handwriting instead of a cold, impersonal brochure," Schratwieser says. *Never say that you are no longer returning checks. Even though they will no longer receive the paper document, customers will get their checks in the same way recipients of a fax receive a letter, even though it's not the actual letter, Schratwieser says. *Educate the entire bank staff from top to bottom to handle objections. A training team should talk with all employees - from vice presidents to tellers - to explain the details. "You don't want a customer to walk up to a teller and ask for his checks and have the teller say, 'Sure, no problem,'" Schratwieser says. (Greg Schratwieser, ICI, 800/729-8237.) Source: IPR
Copyright Phillips Business Information Corporation Nov 6, 1997