Federal Reserve In Deal with Unisys for Check Image Processing

Feds plans to upgrade existing check image processing system to lead to greater efficiencies.

This June, the Federal Reserve Bank of Cleveland, acting on behalf of the 12 Federal Reserve Banks, teamed with Unisys to implement a new systemwide check image processing solution. The new platform is based on the Unisys Open Payments Platform, which is the vendor's enterprise payments solution, and will help enable a more robust system for clearing the millions of image items that pass through the Fed each day, the organizations say.

According to Atlanta-based Rich Oliver, EVP and retail payments product manager for the Federal Reserve system, the Fed's existing check image processing system essentially is layers of electronic processes atop the old paper systems. "We wanted a solution that we could maintain for the long run to support electronification," he explains. "This new system will be more streamlined, more robust in terms of the volume it can handle and more efficient in terms of cost."

According to the Fed, by the end of 2008 the Reserve Banks will process 20.5 million Check 21 items daily versus 13.5 million paper checks.

"As check volumes continue to decline, I think the Fed recognized that systems designed specifically for high volumes of paper checks are no longer the most efficient or effective means for payments settling," says Nancy Atkinson, senior analyst with Boston-based Aite Group. "Further, as images are replacing paper checks, the Fed needs to be able to provide processing solutions for all sizes of financial institutions."

One of the main reasons the Fed is upgrading its processing platform, says Oliver, is to "help clients sustain a low-cost solution to clear items and help increase the overall quality of items. We wanted a solution that wouldn't allow duplicate files or redundant processing and provided quality editing of items -- things that lead to efficiency."

Making the Transition

Although Oliver concedes that the Fed is investing in what can be perceived as a dying area -- checks -- he stresses that check images will continue to take off for the foreseeable future.

"The Fed is obligated to support the processing and settlement of all forms of payments within the U.S.," adds Aite's Atkinson. "This initiative seems designed to streamline the transition and create enough flexibility to allow the Fed to perform as efficiently as possible."

David Luther, VP of solutions development in the global financial services practice at Blue Bell, Pa.-based Unisys, points out that the new system is built on a services-oriented architecture, allowing for more flexibility and reuse of applications in terms of offering multiple payments solutions. "The Fed is buying a commercial payments hub that's being used for other things, such as SEPA in Europe and cross-border remittances in the U.S.," he states. "It's not a siloed solution."

According to Oliver, the Fed is aiming to launch a pilot with the new system in late 2008.