Agent for change
SVPCo's Distributed Traffic Agent promises to make dramatic changes to the way banks exchange images. by: Karl Pezdirtz, VECTORsgi
The new law commonly referred to as "Check 21" will go into effect this fall. This piece of Federal legislation grants a printed check image, the substitute check, the same legal standing as an original paper check. It is anticipated that as Check 21 goes into effect, most banks will begin to exchange check images instead of actual paper checks, reducing or eliminating sorting, transportation and delayed posting costs, as well as shortening the traditional clearing and settlement process, thus reducing the risks associated with returns.
But as banks have begun feeling their way into this new way of doing business, they have discovered that image exchange is more than simply transferring files. The ideal way to exchange images may vary from bank to bank, depending on factors such as the bank's size and its technological capabilities. Fortunately, options have been developed to help banks match an image exchange strategy to their specific needs.
Banks committed to maintaining their own image archive can choose to implement software-based solutions which work from inside the bank, creating, sending and receiving images across an image exchange network.
Many other banks may find it more convenient to take advantage of the Distributed Traffic Agent (DTA) developed by VECTORsgi for the Small Value Payments Company L.L.C. (SVPCo), a third-party clearing house. VECTORsgi was chosen from a field of top technology providers to develop the DTA for national image exchange. With the DTA, image files are exchanged by banks directly, while summary information moves through SVPCo as an intermediary, allowing for settlement or settlement reporting.
About the players.
SVPCo was formed in 1998 when twelve major U.S. banks teamed up to develop and support state of the art payment systems. SVPCo is now owned by twenty of the largest U.S. clearing and issuing banks. These banks hold over $2.448 trillion in deposits (representing 59% of U.S. commercial deposits), forming a critical mass which is a key factor in SVPCo's role in advancing the use of electronic images in the check clearing process.
VECTORsgi is a leading technology firm that provides financial transaction processing, currency control, reconciliation and e-commerce solutions for financial institutions and their customers around the world. VECTORsgi has been a provider of application software in the ECP marketplace since its inception, and is one of the two primary providers of ECP software in the U.S. "We are very pleased to be chosen as a significant contributor to making SVPCo's vision of image exchange a reality," said Rian Maloney, VECTORsgi's vice president of emerging technologies. "This is part of how we are positioning ourselves for the imminent era of image exchange. We will draw upon the proven technology of our VECTOR solutions, as well as developing specialized management and monitoring software to fulfill our commitment to SVPCo."
Take a ride on the DTA
The DTA is particularly well-suited to banks that have already implemented image capture and back office systems. Such banks can enroll in the service and begin exchanging images in a few short months -- it provides immediate, secure access to all the banks currently on the SVPCo network.
But the service can be equally beneficial for banks that aren't quite as far along in image capabilities. VECTORsgi can supply any necessary software for the creation and receipt of image exchange files. This software interfaces with a bank's posting system, handles image quality analysis on both incoming and outgoing cash letters, automates the reconciliation of images to MICR data, and provides for interfaces to the bank's exception, returns and adjustment systems.
"The DTA is an exciting feature of the image exchange network. Financial institutions of all sizes will be able to participate and realize the benefits," said Hank Farrar, President and COO of SVPCo. "A bank's participation in this program is independent of its decision to archive images inhouse or with outsourcing providers."
How it works
In essence, SVPCo's DTA is a specialized local server that acts as a gateway between nodes on the interbank exchange network managed by Electronic Clearing Services (ECS), the SVPCo operating subsidiary that runs the ECP and image systems.
Besides sending and receiving files through the image exchange network, and automating all aspects of image exchange, the DTA transitions some mainframe functions out to server technology, resident at sending and/or receiving sites. Banks can use the DTA for network communications, authentication, file tracking and audit controls. In addition, this innovative approach to image exchange is designed with "open system architecture" so it can act as a conduit to the network for both small and large banks.
For any bank -- large or small -- the most significant benefit of the DTA is that it requires little capital investment. Nominal click charges are the main cost of using the system, which provides immediate access to all the banks on SVPCo's network. All in all, the DTA represents a creative approach to image exchange that allows banks to realize the full benefits of Check 21 -- without re-engineering their entire operations.
A viable option
One issue banks will look at carefully before committing to SVPCo's DTA is its viability over the long term. After all, image exchange has long been a volatile, dynamic subject.
All indications are that the DTA does, indeed, have "legs, " and may well represent the best image exchange option for the majority of U.S. banks. It has already garnered considerable support from major players in the financial world. In fact, the Federal Reserve Banks and SVPCo have agreed to leverage their respective investments in technology infrastructure to support the exchange of digital check images through the DTA.
"SVPCo's image exchange initiative is on schedule to begin exchanges amongst SVPCo banks. Image exchange offers the potential for realizing the full benefits of check truncation, a part of SVPCo's mission to convert checks to electronic payments as early in the clearing process as possible," added Farrar. "It's an open, interoperable approach that enables any financial institution to access the image exchange network."
Time to embark?
The consensus in the banking industry is that most, if not all, U.S. banks will have to acquire the ability to exchange images in the near future, if they wish to remain competitive. And as banks develop an image strategy based on their particular situations, then embark on implementation, SVPCo's DTA is certainly an idea that deserves, and will stand up to, close scrutiny. "Large-scale, interbank check image interchange, and in particular its seamless incorporation into check operations, not as an add-on technology but as an integral part of core check processing, will be essential for banks that want to remain competitive and up-to-date in the payments business," said David Medeiros, Director of Research, Global Payments, for TowerGroup (a leading research and advisory firm specializing in the impact and direction of technology within the financial services industry).
The Distributed Traffic Agent developed by VECTORsgi for SVPCo may well be the ideal vehicle for your bank to meet those challenges. Any way you cut it, the DTA certainly represents an immediate, easy and cost-effective means of exchanging images.
Karl Pezdirtz is Senior Product Marketing Manager for VECTORsgi, a leading provider of financial transaction processing, image exchange, currency control, reconciliation and e-commerce solutions to financial institutions and corporations around the world. The world's largest banks depend on VECTORsgi products and services to help reach objectives such as operational streamlining and the implementation of check image technology. VECTORsgi's software products, VECTOR Solutions, have been licensed over 2300 times. 21Ready, from VECTORsgi Consulting Services, provides management consulting and business practice improvement that helps financial institutions become ready for image exchange -- and become more profitable. For more information, visit www.VECTORsgi.com.
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