Image Exchange Hits Its Stride, But Clouds Form on the Horizon

Though still growing in volume from month to month, substitute checks now account for only about one-third of total image-exchange traffic between banks, according to the latest industrywide data. By contrast, a year ago these costly paper printouts of check images amounted to 56% of all image-exchange volume. At the same time, the number of U.S. financial institutions now receiving images, rather than substitute checks, for settlement has exceeded 6,300 and is closing in on 40% of all paying banks, according to the data, compiled by the Electronic Check Clearing House Organization, Dallas. Separately, the nation's largest image-exchange network reports its volume for June reached 218.2 million items, fully 286% greater than in June 2006. The Clearing House Payments Co LLC, New York, says its SVPCO Image Payments Network processed 10.3 million check images daily last month, exceeding the 10-million mark for the first time in its 2-year-old history. In the year-ago month, the network handled on average 2.5 million images. The SVPCO network serves 20 financial institutions, including many of the nation's largest banks. In addition, networks managed by the Federal Reserve and Metavante Corp.'s Endpoint Exchange link to SVPCO. In another indication of the progress of electronic check processing under the Check Clearing Act for the 21st Century (Check 21), total dollar volume passing through image-exchange networks is closing in on $1 trillion, according to the May data compiled by ECCHO, which gathers statistics from SVPCO, the Fed, and the National Clearing House, which provides settlement services for several image-exchange systems, including Endpoint Exchange and Viewpointe Archive Systems LLC. In May 2006, dollar volume came to less than half the current level, or $424 billion. The total dollars processed via image exchange now totals $11.3 trillion annually, or 28% of all dollars cleared by check, ECCHO estimates. Meanwhile, the annualized item volume of 8.7 billion accounts for nearly one quarter of total check clearing, the organization says. The latest numbers indicate progress for image exchange at a time when some bankers are concerned about the steady rise of substitute checks, which were authorized by Check 21. Paying banks that can't receive images can settle on these substitute checks, also called image-replacement documents (IRDs). While these printouts account for a smaller proportion of total image-exchange traffic each month, they still represent a growing volume of paper, raising costs for banks of first deposit. Some 258.6 million IRDs passed through image exchange in May, up from 230.3 million in April and 101.1 million in May 2006, according to the ECCHO data. A recent study from Framingham, Mass.-based researcher Financial Insights indicates image exchange may become a victim of its own success. The processing channel is growing so rapidly that it will likely begin to decline in volume as soon as 2009 because of the steady drop in available paper checks, the study says (Digital Transactions News, July 5). Another source of concern for networks, banks, and processors is a decision by the U.S. Patent and Trademark Office to uphold substantially all of the claims in a key image-exchange patent held by DataTreasury Corp., a small, Plano, Texas-based software house (Digital Transactions News, July 10). The decision is the culmination of a patent re-examination process that had resulted in a preliminary office action in December invalidating all claims in the patent. The latest office action in effect reverses the December action. A decision regarding the re-examination of a second DataTreasury patent bearing on image exchange, whose claims the patent office also struck down in the preliminary office action, has not yet been announced.