The Western Payments Alliance (WesPay, San Francisco) recently sold its checking services to The Clearing House (New York), on the heels of The Clearing House's merger with the Chicago Clearing House Association. The newly combined entity represents an annual check volume of 3.1 billion and a check-clearing infrastructure that can be considered national in scope.
By doing so, WesPay, a not-for profit trade association, hopes to reduce the costs associated with providing check services to its approximately 1,000 banks and 100 corporate members.
"It is our job to learn how to maximize our investments in our various payments systems and pass the savings, and quality services, on to our members," says Gerard F. Milano, WesPay's former president and CEO and now senior vice president of The Clearing House. "It is important that our systems all talk to each other, and that we have the resiliency to support a multi-office operation."
The Clearing House-WesPay agreement can also foster common strategies for developing new services. "Now the companies can move in unison, and collaborate to create what the future of payment systems should look like," says Hank Farrar, president of SVPCo (Small Value Payments Company), a group that controls electronic payments for The Clearing House. "Consolidation can create efficiencies and keep costs more stable."
The recent Clearing House deals are signs of things to come in the banking industry, according to Gwenn Bezard, senior analyst with Celent (New York). "Between the economy of the physical movement of checks, and the evolution of Check 21, banks are faced with the prospect of investing in imaging technology," he says. "This expensive transition is forcing banks, especially smaller and mid-sized banks, to move away from check processing and rely on large banks or industry associations, like clearing houses."
As more mergers occur, Bezard notes, the next step will involve implementing image exchanges. "With various solutions available, the real questions will be how these solutions will work together, what choices are banks making, and what is going to be the adoption speed and penetration of image exchange," he says.
Going forward, the Clearing House is in the process of laying out a plan for creating a single, integrated payment structure, standard rules and interfaces. The group will also determine how to use the new system and how to gain cost efficiencies amidst declining check volumes.
The Clearing House, the nation's oldest banking association and payments processor, is owned by several of the largest U.S. commercial banks.