The Domino Theory

Get ready for turbulence, says J.D. "Denny" Carreker, chairman and CEO of Carreker Corporation. (Dallas). "The next two to three years are going to be defining for the banking industry," he says.

That's because competitive pressures from non-banks have begun to impact the bottom line of traditional banking organizations. "My brother is the CEO of a retail company and you've got non-banks out there knocking on the door, causing them to make multimillion-dollar decisions to bypass the bank of first deposit," says Carreker.

Thus, 2004 is shaping up to be a transitional year. "It'll be a tough year," he adds. "The business is still going to grow but it's a year where you have a lot of competition, and by definition, if you're not figuring out how you're dealing with it in '04 to '06, you're going to be in trouble."

In order to fend off the competition, banks are preparing to trade check images instead of paper checks or the Image Replacement Documents (IRDs) made possible by Check 21. But that's just the beginning. "We believe that image exchange is the first domino in a series of dominos," says Carreker. "If [image exchange] does take off, it then positions the banks to start looking upstream, from the reader/sorters that they use today to capture images, to ATMs, branches, remittance processing centers, customers, wholesale customers, small businesses, large national customers and even to the point of sale."

Participating banks will have the ability to reshape the economics of check clearing, Carreker says. "You're cutting out transportation costs, you're cutting out processing costs where you're recapturing the item, balancing and reconciling, and you're positioning to do image returns and handle exceptions, which is an enormous cost to the bank."