Small Banks Benefit from Payments Processing Developments
Several developments have occurred in the electronic data exchange field that should help smaller banks do business on the same playing field as larger banks.
Two such opportunities arise from developments within The Clearing House Payments Company, which combined with the Small Value Payments Company and affiliated payments businesses this summer to form a single company.
The new company recently partnered with IntraNet to offer a software interface that will allow many more financial institutions to use CHIPS, the real-time, large-value electronic payment system that many of the nation's largest banks now use.
CHIPS, which currently clears about $1.3 trillion in payments each day, features a multilateral netting system which eliminates offsetting cash flows between the several subsidiaries. This maximizes banks' liquidity and reduces overdraft charges. CHIPS accommodates remittance information from a variety of universally accepted standards, which enables CHIPS' participants to offer business customers an integrated solution for moving payments and payment-related information.
Until now, accessing CHIPS required an expensive software solution developed in-house or by a third-party funds transfer software specialist, a requirement that represented a significant start-up barrier for financial institutions with low volumes of wire transfers. The new software allows any bank with the IntraNet CHIPS module to access the system.
In a second development, the Small Value Payments Company joined forces with VECTORsgi, a transactions processing solutions company that provides services to many community banks. The two companies have released a system that will allow banks with smaller check clearing needs an image-clearing gateway through which they can deal with financial institutions of all sizes.
The system allows regional and smaller depository financial institutions using the VECTORsgi software to exchange image files directly with each other and larger banks by using SVPCO as an intermediary to move reporting and settlement information. The single gateway provides service to multiple financial institutions. A gateway customer would send a single file with a series of cash letters, each of which could be routed to different destinations.
SVPCO banks represent 58 percent of U.S. commercial bank deposits and more than 60 percent of the checks in the U.S.
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