WEST PALM BEACH, Fla. – Kathy Garner and Pete Pritts hope that if their vision of a national credit union-owned exchange “switch” comes to be, the industry will have a lot more control over how it plays in the post Check 21 world when image exchange finally takes off. The problem is getting there. Right now it seems like there are more questions than answers with Check 21. While it does not mandate image exchange, image exchange is the brass ring that can come out of the legislation because it knocks down barriers. But how will it happen? Will items be imaged at the credit union? How many clearinghouses will CU item processors have to cut deals with for it to be cost effective? Will substitute checks be accepted by members? For image exchange to come to fruition, banks, credit unions, the Fed, and massive clearinghouses like SVPCo and EndPoint Exchange will have to come to business agreements with each other to exchange images, and then have the technology to link it all together. That won't be easy and many Check 21 experts say full-blown exchange is years off. Garner, CEO of Northwest Corporate, and Pritts, CEO of FirstCorp, want the credit union industry to start working now on what they describe as a single, large national credit union image exchange “switch” that will help credit unions to get the best possible pricing in the exchange environment. “If we could aggregate credit union check volume at one location, we would add enough value where the large banks would want to come and the SVPCo's would want to come and participate in this large credit union exchange. The more volume we have, the more value we are to banks. It's very expensive for banks to go to clearinghouses across the country. We could maybe even bring enough value that they would pay us to participate,” said Pritts. Individually, corporates and other credit union check processors have been making deals with clearinghouses on their own. Pritts believes corporates, league services corporations, and other major CU check processors need to put the politics that surround any CU consortium aside and join forces to gain some economies of scale. Garner said getting 100% participation may be too ambitious. “If it involved all the corporates, all the league service corporations that are processing, plus the Fiserv's out there, that would be ideal, but realistically it would be good to just get the majority of them,” she said. Garner said now is the time to look at this because everyone is scrambling to make their own deals with clearinghouses. Corporates can be a good starting backbone, especially since they control settlement. “I think we can get corporates. The whole idea is to get a better price as a group,” she said. Garner and Pritts both say nothing is concrete, they have simply formed a working group to get the dialogue in the industry started. If everything goes as planned, eventually a new CUSO would form. SunCorp is also a member of the working group and SunCorp EVP/COO Brandt Peterson said credit unions not only have an experience edge on bankers when it comes to imaging and truncation, but they have something bankers want – money. “Credit unions are removers of checks out of the system. We clear about eight times as many checks as we deposit. If you're a banker on the other side of the table looking for the fastest most effective way to get paid, that's where credit unions come in,” said Peterson. Peterson said the whole concept of a national CU exchange switch is more of a business question, than a technological question. Getting everyone on board could be more challenging than the technology. “We don't believe anything would have to change (for check processors). The solution has to be open enough, not to be directed by the vendor, whether that's Wausau, AFS. If it's open and flexible, it doesn't matter what the back-end process is,” said Peterson. Interestingly, even though SunCorp supports the national switch concept at press time it just struck a deal with EndPoint Exchange in preparation of image exchange. “That doesn't go contrary to a credit union owned solution. Our view is we have to provide access and options to our members. It would be nice if the national deal ever happened, but that will take time. We have to have multiple options,” said Peterson. SunCorp's move to Endpoint shows how corporates are working individually in preparation for image exchange. WesCorp, Southwest Corporate, Southeast Corporate and Corporate One already have deals with Endpoint in place, but individually, not as a group. Empire Corporate has selected SVPCo. Time to Act is Now WesCorp Senior Vice President of Correspondent Services Tony Kitt, who is leading the charge to get WesCorp prepared for image exchange, said the concept is possible, but they better step on it. “Creating a national image exchange `switch' is feasible, but this CUSO must act fast since our competitors -EndPoint and SVPCo – in this market have complete or near complete solutions. A major issue facing all competitors is adoption of image exchange. This is not only affected by `who' exchanges the items, whether it's the credit union national switch, Endpoint or SVPCo, but the readiness of the rest of the industry,” said Kitt. As Kitt sees it, the pros of a national CU switch would be the better pricing due to aggregated volume and the fact that it would be a single CU solution for image exchange, making it more attractive to exchange partners. On the con side, the costs for building a switch are unknown and speed to market may be a problem. One place where this single switch concept is expected to be discussed is at U.S. Central's upcoming Check 21 Forum to be held at the Airport Hyatt in Dallas on April 8. FirstCorp and Northwest Corporate have also formed two CUSOs that could play a role in the national switch concept. The first is Credit Union National Item Capture, which has First Corp and Northwest outsourcing their item processing to Aurum Technology (soon to be acquired by Fidelity National). The second CUSO, CU eArchive Solutions, is where U.S. Central comes in. The CUSO has a management agreement with U.S. Central to archive their items in an underground site in Kansas City. Kansas City is known for its underground caves. A U.S Central rep said the caves are said to be impenetrable to just about anything. Pritts believes U.S. Central's archiving role could be key to getting a national CU image switch started. “When you think of a large national exchange, a natural need is an archive,” said Pritts. And he said for those corporates and leagues that don't want to invest in new equipment for archiving, the U.S. Central option can be cheaper. “Check use is flat and decreasing in some cases. For that reason, who wants to be laden down with getting new check processing equipment,” said Pritts. Kitt thinks the national archive concept definitely has merit. “While a national image archive is not a requirement for image exchange, it would have appeal to those who have not already made aninvestment in a back up archive environment. We believe the best approach to a national credit union archive is on a time-phased plan over the next several years,” said Kitt. U.S. Central SVP of Correspondent Services Bob Amundson said if more corporates wanted to join FirstCorp and Northwest in archiving images at U.S. Central, the corporates' corporate could accommodate them. “The good news on the archive is it's a very scalable solution from AFS. It is a matter of adding memory to the archive. We have very large pipes coming in here in terms of telecom and connectivity. I don't think there would be an issue in expanding this,” said Amundson. He said that corporates who aren't interested in U.S. Central's site as a primary archive, could use it as a back-up hot site. As for the single CU exchange, Amdunson believes it's very doable. “One of the things the corporates own is automated settlement for receipt of items and clearing items. If we could get several corporates and leagues to join together it would represent thousands of endpoints. You'd be able to concentrate items through a single presentment point and then have a settlement system which works with the combined endpoints,” he said. “This is purely a numbers game. Whether you're a bank, or a credit union or a third party processor, the more volume, the lower your costs.” Amundson said the credit union industry has the luxury of experience. “The league service corps and corporates are in a very advantageous position compared to their bank brethren, because of their broad expertise in check truncation and imaging,” said Amundson, who said he's hopeful the switch concept will draw a lot of interest at the U.S. Central meeting. So what does Fiserv, a powerhouse in the item processing world, think about the national CU switch concept? It's logical, but it will be a wait and see game on pricing advantages, said Steven Ward, Executive Vice President in Fiserv's Item Processing Group “It makes practical sense. I mean SVPCo and others don't want to send to 10,000 endpoints, but I'm not sure it will result in better pricing on the outbound side,” said Ward. “We believe when exchange happens it's the sending organization that will pay. It's to their advantage to have someone receive images, and no one has to receive images, that's only by agreement,” said Ward. Ward believes financials will best be served by exchange it they are settling with each other and passing images to where they need to go. “That's what we're doing. Why pay EndPoint? We're building the Fiserv Clearing Network to clear among our clients. This credit union switch could be a settlement node on the Fiserv network,” said Ward. [email protected]