Check Processing

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Industry Faces Spikes in Check Processing Costs

Just when they are most in need of saving money many banks are about to find themselves in need of new check processing equipment. Either that, or those that do their own check processing will be forced to outsource that business, an unwelcome loss of control.

So predicts Leon Majors president of the payments systems practice, for Phoenix Marketing International, a Rhinebeck, NY, research firm, which regularly surveys banks about their check processing business.

In recent years, banks enjoyed a reduction in their costs to process checks, both because of their steady decline as a payment method since 1998 and particularly because of a widespread move to check imaging, instead of paper processing, a few years ago, Majors told BS&T in an interview. "The cost of maintenance fell to a third of what it was," he says, as banks did not need to use as many machines for processing once paper volumes fell and they could keep spare machines to replace others that failed. This, instead of paying their previous 24/7 maintenance bills. Now those spare machines are failing, Majors says, meaning "what got cheaper now will be expensive again."

Facing a cost of "multi-million dollars" to replace check processing equipment is likely to force greater use of outsourcing, Majors says. "Banks that process their own checks like it that way, but we expect they will be forced to change."

Sharing with BS&T some findings from Phoenix's unpublished survey of 1,200 banks last October, Majors said, "Total check volume continues to drop by four percent a year, but 42 percent of banks—mostly small banks—are seeing increased check volumes."

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