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Faced with a major capital investment for its check processing center, Chicago-based Northern Trust needed a way to stay on the leading edge of technology but without excessive expenditures. However, investment in check processing presents a unique challenge: As electronic commerce picks up, check volume stands to drop off down the road. The bank enlisted Fiserv, Brookfield, Wisconsin, to take over its entire check processing operation. Fiserv assumed all of Northern Trust's check processing functions plus all the equipment and 300 bank employees.
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Faced with a major capital investment for its check processing center, Chicago-based Northern Trust needed a way to stay on the leading edge of technology but without excessive expenditures.
"Check processing is a highly capitalintensive organization, requiring reinvestment in technology periodically," said Anna Quinlan, senior vice president and head of banking services at the $28.1 billion institution. "Every bank is confronted with the same issue. The technology to process these checks gets old. It does need to be replaced, and it is very expensive."
However, investment in check processing presents a unique challenge: As electronic commerce picks up, check volume stands to drop off down the road. "[Banks] are not going to want to make major investments in an area where activity will be diminishing," Quinlan noted.
Yet check processing remains a mainline system and a service vehicle for banks like Northern Trust, whose offerings include a myriad of disbursement products for corporate clients plus services like positive pay and account reconcilement.
"If we're going to offer clients enhancements like imaging capability and images [available] via the Web, we need to continually upgrade to keep the core system at the latest version," Quinlan said.
To solve this dilemma, the bank enlisted Fiserv, Brookfield, Wis., to take over its entire check processing operation. "Since this is a major business line for Fiserv, they are willing to take on the risk and the technological investment part of the business in return for us paying them a fee," Quinlan said, adding that part of the agreement with Fiserv includes a guarantee that it would keep up with the latest technology "Fiserv's philosophy is that if check volume does begin to come down, more and more banks will be looking at alternatives more seriously," she explained. "So they expect to be growing the check processing component of their business."
With the move, made last November, Fiserv assumed all of Northern Trust's check processing functions -- sorting, returned items, disbursement activities, statement rendering, etc. - plus all the equipment and 300 bank employees.
Quinlan said the transition was seamless. "There were no challenges once you got through the business case and the financials. They took over our operation and will remain on-site until the third quarter of this year," she explained. "Our clients have reacted very favorably to this - better than expected. That's partly because we retain the service element to our clients; we are the interface with the client, always."
From a human resources perspective, though, the transition has been more complicated. "It really became a human challenge," Quinlan said. Getting check processing staff to understand that they weren't disadvantaged by the move was tough, but only one person left, she explained. "Fiserv very much wanted our people, and they've done a very good job of convincing people that Fiserv is a good company to work for. The challenge now is to get them to think of themselves as Fiserv employees and of Northern as a client."
That is likely to get much easier in September, when check processing will be moving off-site to the nearby Apparel Mart. But that's where the technological challenge will come into play-making a physical move involving a lot of equipment and people without disrupting regular check-processing functions.
Though the move isn't under Quinlan's management, she has concerns. "They need to be successful so they can continue providing the services," she said. Still, Northern Trust already has started to reap the financial rewards of the outsourcing agreement, added Quinlan.
"The financial benefits that we expected are coming through. That's being validated each month," she explained. "[Outsourcing will allow me to continue to provide clients with technology that will remain leading-edge and produce products that clients are asking for, without the investment in this part of the treasury management business."
So are the expected technology improvements. Northern Trust had rolled out imaged statements for part of its client base before the outsourcing arrangement with Fiserv, but Fiserv has since completed the implementation, Quinlan said. And by upgrading the platform, the bank will be able to introduce document and check imaging services that it wouldn't have been able to offer if check processing had remained in-house and not received further investment, she added.
"There will be further check image products that we're in the throes of rolling out right now," Quinlan said, "because they're already making some technological upgrades."
-Jeanne O'Brien
Copyright Miller Freeman Inc. Jun 1999