BOSTON – Spending on check imaging is exploding as check truncation regulations and the gear to make the process happen move rapidly onto the scene, according to a new report. Celent Communications predicts that annual U.S. check-imaging IT expenditures will increase from $550 million this year to $1.9 billion in 2005. Driving this investment, according to report author Alenka Grealish, manager of Celent's banking group, are "declining check volumes, the near certainty of Check 21′s passage, improved price and performance of imaging hardware and software, and the rise of cooperative image-exchange initiatives." Outsourcing is expected to grab a large share of that business, growing to about half of the spending in 2005 compared with about a fourth of the market now, Celent says in the report, titled "Check Imaging: Moving to Prime Time & Beyond." Grealish bases her conclusions on conversations with "nearly 40 tenured check processing executives at mid-size and large banks, consortia, clearinghouses, the Federal Reserves and solution providers," the Boston-based think firm says. The typical check is handled manually from 10 to 28 times and financial institutions in the U.S. spend between $6 billion and $8 billion a year to employ the 50,000-plus people and 300-plus check-clearing centers needed to process all that. And excess capacity is becoming more of an issue as check volumes decline. "Check processing consumes extraordinary amounts of capital and human resources, making it the second most expensive part of a retail banking operation after the branch network," Grealish says. In response, she says, "What was unthinkable five years ago is happening today. There have probably been more major check imaging projects since 2001 than in the past 10 years combined. In contrast to 2000, during which no major check imaging deal was announced, 2001 inaugurated a string of check imaging contracts that have totaled over a half billion dollars to date." Congress, meanwhile, is expected to soon pass Federal Reserve-sponsored Check 21, legislation which would change current laws that now require checks to be physically presented and returned unless the financial institutions have made agreements to accept electronic presentment. That passage will "usher in mass adoption of check imaging," the Celent report says, predicting that 83% of all financial institutions with more than $5 billion in assets will have fully image enabled check processing in-house or outsourced by 2006. Cooperation in developing standards and building exchange networks – not unlike the ATM networks of today – will be a key to maximizing benefits, Grealish says, which will include "dramatic savings" of up to a third of current operating costs. It's a simple case of technology paying for itself quickly. "Advancements in check imaging technology have achieved attractive cost/performance levels for most types of applications. The technological coups have been in archiving and transmission," Grealish says, beginning with distributed capture, "which is pushing imaging upstream to the point of entry." Fraud mitigation and Internet access products are "the most exciting products and services today . On the horizon, early posting and funds availability are promising competitive levers," the Celent analyst writes. -

[email protected]