Fiserv Looks to Exploit Opportunities in Substitute Checks

Fiserv Inc. expects to do a major business in the new substitute check instrument that has been created by the Check Clearing for the 21st Century Act (Check 21)?so much so that it is entering into agreements with a software company and an air carrier to deliver and process potentially billions of the items, also known as image-replacement documents, in the coming years. “We see the initial volume of IRDs as little higher than what people think,” says Stephen J. Ward, executive vice president of the item-processing group for the Milwaukee-based company, the largest third-party check processor in the country. Seen by many experts as a catalyst to the trading of electronic check images among banks, Check 21 will, when it goes into effect Oct. 28, confer legal status on the substitute check?a paper printout of a check image. It does not mandate image exchange, but by giving legal force to the substitute check it encourages imaging and the development of image-exchange networks. Ward and others, however, think the IRD will likely have a good run in the mean time. Return items, he figures, will be best handled as IRDs, allowing banks of first deposit to transmit images across states and regions to printing facilities, where Fiserv will generate IRDs for delivery to paying banks. Also, he argues, not all banks are prepared to accept images and may not want to pay image-exchange fees. How exchange networks will levy these fees is still being worked out. Only one national network is operational, with at least three others going live over the coming months. But some speculate all or some of the cost of each exchange will be borne by the receiving bank. “They may not want to pay the price,” says Ward, who estimates it will be five to seven years before banks work out such issues and move entirely to full-scale image exchange. As a result, Fiserv has announced ventures this week intended to exploit the opportunity it sees in processing IRDs. It has forged an agreement with Salt Lake City, Utah-based NetDeposit Inc. to use that company's software in combination with its own in receiving, printing, and processing IRDs at Fiserv's 50 image-enabled data centers. At the same time, it will install IRD-printing facilities in the seven hubs operated by AirNet Systems Inc., a Columbus, Ohio-based air carrier that transports 70% of the nation's transit checks. With check volumes declining, AirNet formed a subsidiary, Fast Forward Solutions LLC, to get into the business of printing and delivering IRDs from its regional hubs for its client banks (Digital Transactions News, Jan. 16). Fiserv's Ward estimates, conservatively, that 1% of the 55 million checks AirNet carries each night will be converted to IRDs. Ultimately, he adds, Fiserv will install IRD printing facilities in “spoke” cities in AirNet's hub-and-spoke system.