A check processing venture formed by several of Britain's largest banks may hold a portent for how the U.S. market might evolve.
Intelligent Processing Solutions (iPSL), a U.K.-based joint venture founded by Lloyds TSB Bank, Barclays Bank and Unisys, now clears almost half of the 2.7 billion checks written by British customers each year. With the addition of HSBC Bank to the venture, iPSL stands ready to clear more than two-thirds of the country's annual total.
Given the geographic characteristics and financial profile of the U.S. banking market, the iPSL model could conceivably take hold in this country. "U.S. banks have so many processing centers because of M&A and geography," said Brian Geisel, founder and CEO of Alogent, an Atlanta-based supplier of check clearing software. "Their centers don't communicate with each other, and are often passing paper from the branch to a center to another center."
"This has a serious 'lag and drag,'" he added.
Alogent's Sierra Clearing system is the core check clearing software platform for iPSL. The product, which runs on Microsoft's Windows 2000 operating system, provides flexible workflows and minimized exceptions, Web-based software for data and image processing, and a structured rules engine. Alogent is also offering its branch capture system, Sierra xClearing, to iPSL member banks.
Lloyds TSB Bank provided much of the impetus for the iPSL venture, based on its experience using Sierra Clearing. In a multiyear effort, Lloyds TSB optimized item processing workflow throughout its 2,200-branch retail network. The success of the project led directly to the iPSL venture.
The outsourcing option not only takes advantage of scale economies, but also paves the way for easier interbank processing. By using a shared facility, iPSL member banks will have an easier time exchanging checks with one another. "British banks have a very good history of jointly taking the steps needed to streamline their back-end processes," said Steve Ledford, president of Atlanta-based consultancy Global Concepts.
The decision of whether to capture check images at the branch or at a processing center depends on a bank's unique circumstances. "iPSL is able to take the clearing process and start it anywhere-from the teller line, right there at the counter where the item first enters the process, all the way to a fully-centralized process," said Ledford.
Yet banks don't have to choose between centralized and distributed item processing, as they can mix-and-match depending on their specific requirements. For example, capturing items at the teller window may make sense for a geographically-distant branch, or at one that accepts a large number of relatively low-dollar-amount deposits. On the other hand, a central facility would be the more likely answer for a bank branch serving large retailers.
A bank's footprint across time zones also determines the return on investment for a branch capture system. "Let's say you're a bank sitting in London, with branches in Hong Kong or Tokyo," said Ledford. "You want to make sure that folks working in Asia have a good understanding of their sterling position the minute their lights go on in the morning."
That also applies for U.S. banks, as when East Coast banks are waiting for California branches to close. "There's a lot of pressure in the U.S. market for banks to keep their branches open until very late," said Ledford.