The Clearing House Payments Co. (New York) has launched automated settlement for financial institutions transmitting check images through its SVPCO network. Renamed the SVPCO Image Payments Network, the service combines the ability to send and receive check images with the financial settlement of the transaction.
This was in the game plan from the beginning, according to Susan Long, senior vice president, SVPCO-Electronic Check Services. "We always intended to do automated settlement," she says. "But image exchange is a huge change to implement. It takes a ton of resources in the banks -- they wanted to make sure they got it right."
Having succeeded in that task, the SVPCO member banks could then deploy their best payments technologists onto automating the settlement process through the network. Exchanging images requires the use of a "distributed traffic agent," or DTA, which involves hardware and software to manage the flow of files to and from the exchange. But prior to automated settlement, each bank had to negotiate the settlement terms with each exchange partner.
Now, automated settlement is part of the SVPCO package. "As part of the implementation, they sign agreements with us, saying that we do settlements for any financial transaction," says Long.
The single agreement eliminates the need for banks to enter into multilateral negotiations over settlement methods. "Wachovia is now exchanging with Bank of America, and when they add another partner, they don't do anything but test with that partner," notes George Thomas, executive vice president, The Clearing House Payments Company.
Net settlement occurs twice daily, at noon and at 4 p.m. Eastern U.S. time. "If I'm exchanging with 10 partners, everything I send and receive from those 10 partners would get all rolled up into the net settlement," says Long. "I can see all the files I've sent, what I've received and my net position."
Since the banks using SVPCO for image exchange also tend to use the Clearing House for their paper check exchange, the combination creates the opportunity for those organizations to gain insight into the big picture. "A financial institution can have a consolidated view of all their check activity in one place," says Long. "Whether it be a paper check item, an image exchange item, or an adjustment, if you're the manager of a check operation, you want to see the whole business, all together."
Automated settlement is provided at no additional cost, as it is bundled into the transaction fee. The process will eliminate the need for participating banks to use the Federal Reserve or National Clearing House (NCHA; Dallas) for settlement, as is necessary using other image exchange networks such as Viewpointe (Charlotte, N.C.) and Endpoint Exchange Network (Oklahoma City), observes Thomas. "In networks that use NCHA, you have to join NCHA as a separate process -- either manual or custom coding to interface to the settlement system," she says. "Not only do you have to make the connection to the exchange network, you have to make a separate connection to the settlement system."
By contrast, SVPCO's combined system has the potential to reduce operational and credit risk, claims Long. "The banks sometimes take it for granted, but this is one of the most, if not the most important thing -- that we're monitoring the creditworthiness of all the banks in the exchange," she says. "We know how to monitor that."
With this move, SVPCO has staked out a position as a payments processor instead of an image exchange network. "If our competitors want to do the same things, they really have to become payment system operators," says Thomas. "They'd have to integrate it in-house, and then get approval from the Fed to do settlement, and that's a big step."