‘Day of Reckoning’ Beckons As Image Volume Peaks in ’08

Image-exchange networks and the financial institutions that use them to process checks electronically may have to contend with a dwindling supply of checks sooner than they expected. For the time being, the networks are doing a robust business, with the volume of items expected to more than quadruple this year, says Aaron McPherson, research director for payments at researcher Financial Insights, Framingham, Mass. And they can expect another increase in 2008. But in 2009, McPherson says, image volume will start to drop. “The day of reckoning is coming sooner than anyone thought,” McPherson tells Digital Transactions News. “Two years is an extraordinarily short period of time.” The near-term falloff in volume will force the networks to seek business in other markets where they can leverage their strengths in converting data-rich paper documents into electronic files, McPherson says. He says likely new markets include health-care payments, where insurance companies and providers remain mired in the inefficiencies of complex paper documents like claim forms and benefits statements. “There's a tremendous amount of paper that goes back and forth in the health-care industry,” McPherson says. “I'm thinking the image-exchange networks will be well-suited to transmit these records between payors and providers so you can at least cut out the mail.” He says networks have expressed interest in this market but to his knowledge none has put together a product for it. With image volume expected to peak in just two years, the networks are running out of time to draw up plans for alternative markets, McPherson warns. “There needs to be an increase of pace,” he says. Image-exchange networks are owned by one or several financial institutions, which could complicate this task, he notes. “They need to get bank buy-in, and the bank parent may try to quash it,” he says, if the initiative is seen as competitive with services the banks are already offering or planning to. By contrast, major processors like First Data Corp. or MasterCard Worldwide face no such obstacles, McPherson says. “[They] can offer whatever they want,” he says. According to a forecast McPherson published last month, image volume will grow from 2.9 billion items in 2006 to a high of 15.3 billion in 2008, then will begin to drop, falling to 10.8 billion by 2011. Ironically, the image-exchange networks' own success is leading to the earlier-than-expected peak. Check volume is falling at increasing rates, and conversion to electronic transactions through the automated clearing house is continuing to divert about 13% of paper checks annually. But banks have adopted image-exchange more rapidly than forecasters like McPherson thought they would, particularly on the send side, and have been more willing than many expected to assume the costs of printing image-replacement documents, the paper printouts of check images authorized by the Check Clearing Act for the 21st Century (Check 21). “The big banks are much more aggressive in terms of flipping the switch than we expected them to be,” he says. As a result, the supply of checks available for image exchange, he says, is running out sooner than expected.