Corporates, Leagues Agree to Look Further at Creating a National Credit Union Image Exchange

LENEXA, Kan. – The push for a single national credit union image exchange entity to give the industry a major advantage in the post-Check 21 world took another step forward recently. In April U.S. Central invited the major credit union item processors (a mix of corporates and league service corporations) to get together in Dallas to discuss what they can do to best take advantage of the image exchange that is expected to proliferate in the years following Check 21. “We got back together two weeks ago in Chicago, and at that point the group overall endorsed further research into an image exchange solution for presentment out into the broader financial industry and as a collection point for in-bound items. It would allow us to operate at an advantage because of volume with other financial institutions’ third-party switches,” said U.S. Central SVP of Correspondent Services Bob Amundson, who noted that most of the processors invited showed up to the meeting. The concept is that the credit union industry could present one pipeline in and one pipeline out for the electronic exchange of checks with the rest of the financial services world. The primary advantage touted by proponents is favorable pricing with major banks and exchange networks. “I hope I’m not oversimplifying this, but it would be much like automated settlement is today,” said Northwest Corporate CU President/CEO Kathy Garner. “I think rather than all of us going out and joining all these exchanges, we do it as one and not recreate the wheel many times over around the country,” said Garner. Garner and FirstCorp President/CEO Pete Pritts are leading the charge on the corporate credit union front for this national exchange. The two already have formed a CUSO that has a management agreement for U.S. Central to handle their image archiving in U.S. Central’s facility in Kansas. Pritts, whose corporate went live with U.S. Central about six weeks ago for archiving, said the national archive could be the predecessor for the exchange. “We’re extremely pleased so far and we have reduced the time it takes for our members to access images. It was 30 seconds and now it’s under 10,” he said. His corporate processes about five million items a month. Northwest, which processes six million a month, will be moving to U.S. Central shortly and Pritts said this can be a mini test of what could happen nationally for archiving. Pritts said once you get a national archive together, then the real exciting stuff starts happening. “The next natural step is electronic exchange, feeding right out of this archive. If we have a big chunk of volume coming from the credit union industry, the SVPCos, Endpoints are suddenly going to see us as one point and we should get pricing breaks,” said Pritts. Some believe however that archiving at one location isn’t necessary and the single image exchange could still be done without the archive. Pritts thinks one archive would be advantageous, and he hopes the industry doesn’t approach the exchange in a piecemeal fashion. “Yes this could be done regionally, but to me that’s just adding a step we don’t need to add. It will evolve into a more consolidated single point anyway,” he said. What about all these individual deals corporates and league service corporations are cutting on their own with Endpoint and others. One source close to this story said none of those deals are exclusive, so corporates and leagues could always add more contracts, and there’s also word that the Endpoint’s of the world would be willing to adjust the existing contracts for a new one with the single CU item processing switch. “We are 100% in support of whatever the corporates and leagues want to do. It’s definitely worth them looking at all the options, especially a national CUSO option,” said Endpoint Exchange General Manager Mark Craig “Whether it’s a single point of entry or multiple points, we think that they’re a key to future success of the electronifying the check network.” SunCorp President/CEO Eric Kenealy said the real value in the exchange is ownership. “I’ve always been a strong advocate of a credit union-owned switch for image exchange. There are a lot of people who feel that Endpoint Exchange is a great option, on the other side AFS is a good trusted provider for imaging, but look what happened to AFS, they’ve been bought out. If you don’t control your own destiny and ownership from your provider changes hands, that can cause uncertainty,” said Kenealy. AFS was purchased by Metavante which has been on a buying spree, acquiring four companies in about a year. Credit unions already have an advantage in the post-Check 21 world because not only have they been truncating for years, they have also been investing money in imaging equipment. All those investment dollars don’t go to waste because corporates and league service corps. wouldn’t lose the capture part of the business, said Amundson. “Installation of branch capture devices, moving items to corporates in paper form or whether you turn them into an image at point of capture, that’s their business, and always will be their business,” said Amundson. It’s where those images go after the corporate captures them from the credit union that will change. Amundson also noted that big banks are starting to close the gap with credit unions’ imaging prowess and could soon compete for CU imaging business. “The correspondent bankers who weren’t image enabled in years past are becoming image enabled. They’re going to be approaching credit unions saying, `hey I can do this as cheap or cheaper,’ ” said Amundson. Amundson noted that this national CU concept isn’t new, the big banks are doing a similar thing with SVPCo, which is owned by 20 of the largest U.S. clearing and issuing banks. SVPCo owners hold over $2.448 trillion in deposits and represent 59% of U.S. commercial bank deposits. There is some guarded optimism said Amundson, because any time you ask all industry players to participate there can be political problems. Jerry Keenan, SVP for Cooperative Services Inc., a league service corp. of the Georgia League said he thinks it’s definitely feasible. “ Certainly the concept is good. The biggest challenge would be getting sufficient buy-in from everyone depending on capital needs and other needs. Right now everybody is on board, we just need to see what the model looks like,” said Keenan who noted that CSI has joined Endpoint Exchange in anticipation of starting to exchange items later this year. Garner thinks most in the industry would jump on board if it came to fruition. “I think the majority will. If you get many of the big players, eventually people will roll into it. They can still capture and archive however they want. They just send the file to the central exchange which sends one big file to Bank of America,” for example, said Garner. Amundson described what’s happening now as an intense research project. It’s moved beyond the concept stage and the working group is looking at things like what software and hardware products they would need to flesh this thing out. “I don’t think there are monstrous technical hurdles. But we’re talking about moving items, moving items with a financial value, so you have to figure out how you can you craft all those agreements so no one is put in a bad position,” said Amundson. Garner again pointed to settlement as the best example of how it could work. “The money and the file exchange will be very simple. It’s getting to that point, gathering the files, making sure everyone has the right software to transmit to a national exchange,” said Garner. She believes doing this now will just save the industry from doing it three to five years down the road. Another issue the group would have to decide is how to distribute ownership among the industry. It’s too early to get into that, said Amundson. [email protected]