Network Could Trim Bank Costs

Bowing to Americans’ steadfast affinity for check-writing and reluctance to embrace all-electronic forms of payment, a consortium of banks today will unveil a venture that they hope will eventually eliminate the need for banks to exchange physical checks.

Small Value Payments Co. will set up an electronic network that will allow banks to exchange check data, saving its 12 member banks as much as $900 million in check processing costs in the first five years. Complete electronification of check processing could save the banking industry more than $5 billion, the company said.

The system also aims to reduce fraud by cutting from days to hours the time it takes to identify a bad check. Banks lose about $1.3 billion a year from uncollectible checks, said Hank Farrar, senior vice president of SVP.

Currently, when a bank receives a check, it processes it and sends it to the bank from which it was drawn. That bank then processes the check again. The two banks also had to negotiate agreements with each other on how to exchange checks.

The new system would still require that the check be processed, but only once, and under standardized guidelines so that the data collected could be shared electronically by banks participating in the system.

Members of the newly formed consortium are BankAmerica, Bankers Trust, Bank of New York, Chase Manhattan Bank, Citibank, European American Bank, First Chicago, First Union National Bank, Fleet Bank, Marine Midland Bank, Norwest Bank and Republic National Bank of New York.