First to Swap Images, Endpoint Exchange Reports Fast Growth

While the race is on to hammer together electronic networks to carry what is expected by many to be a huge volume of check images between banks, the only network that has gone live so far reports it is achieving fast growth. Endpoint Exchange, a network owned and operated by CheckClear LLC, Oklahoma City, Okla., went live 18 months ago and is now trafficking 140,000 images a day, says Mark Craig, general manager of CheckClear. Some 1,200 financial institutions are now live on the network for full truncation and settlement based on images, with another 700 in test phase coming live within weeks, and an additional 1,400 scheduled for connection between now and July, he adds. With that timetable in mind, he projects image volume across the network will balloon to 1.2 million files daily by July, nearly nine times current volume. At least four other networks are in various stages of development, including efforts by Small Value Payments Co. (SVPCo), New York, the Federal Reserve system, Charlotte, N.C.-based Viewpointe Archive Services LLC, and NetDeposit Inc., Salt Lake City, Utah, a subsidiary of Zions Bancorporation. SVPCo, which serves 22 large financial institutions, may be next in line for actual image-swapping. It says it expects to bring its first two image-exchange clients, J.P Morgan Chase & Co. and Key Bank, live by July. Each system recognizes it will need to compete for volume but at the same time will need to interchange with other networks to be able to serve clients' needs to reach as many other banks as possible. “A spirit of friendly competition exists right now [among the networks],” says Craig. “I want the other exchanges to come live so I can interoperate with them.” The efforts to build image networks accelerated late last year with the passage into law of the Check Clearing for the 21st Century Act, popularly known as Check 21. Set for implementation in October, Check 21 permits banks to treat so-called substitute checks, or printouts of imaged checks, as though they were the original checks without the need for prior agreements. This is expected to trigger a flood of image exchange, as financial institutions swap digital images as a way of eliminating or largely reducing huge transportation and other processing costs associated with paper-check handling. Celent Communications estimates image exchange, once in common use, will cut banks' check-processing costs by about one-third. These costs currently total about $7 billion annually to handle 41 billion checks, of which roughly 30 billion require routing between banks of first deposit and paying banks.