Processing Your Payment

Please do not leave this page until complete. This can take a few moments.

December 6, 2004

Crossing the digital divide | Check processor FISC Solutions hopes innovation will help it gain new customers

By Sara Donnelly
For Carol Sabasteanski, the holidays mean loads of paperwork, and not of the gift-wrapping variety. Sabasteanski is president and CEO of FISC Solutions, which provides financial and organizational services to a range of businesses including utilities, insurance companies and financial institutions. About half of FISC's business revolves around core item processing, otherwise known as check processing.

Over the holidays, FISC enlists its force of 120 full-time and 40 part-time employees to work around the clock at its Lewiston headquarters, processing checks from banks in Maine and New Hampshire.

But thanks to a new law called Check 21, FISC's check processing machines may be headed for a period of permanent silence. The law, officially titled "Check Clearing for the Twenty-First Century," is part of a larger movement among financial institutions toward digital processing of checks, which would save both time and money otherwise spent on transporting paper checks by truck.

Prior to Check 21, some financial institutions refused to accept what are called "substitute checks," or digital copies of checks; as a result, processing firms like FISC were unable to digitize their systems completely. Now, however, Check 21 requires all financial institutions to recognize the substitutes, paving the way for processing centers, banks and credit unions to go fully digital. (See "Eliminating the float," p. 29.)

Sabasteanski says the Check 21 law, which went into effect Oct. 28, means that the check processing industry will be entirely digital in the next few years, with companies like FISC transferring and reading only computerized copies of drafts. Whereas now the process takes one to two business days, including time lost to ground transportation, digital images of checks can be processed in as little as two hours. But which companies will be propelled into innovation and which will fall behind remains to be seen.

"It's a time for change and people have to be looking for opportunity in this environment," says Sabasteanksi, who has worked at FISC for nearly three decades. "It's going to be a challenge."

Steve Ledford is the CEO of Global Concepts, a payment systems consulting firm based in Atlanta which counts FISC among its hundreds of past and present check processing clients. Ledford says Check 21 intentionally gives breathing room to smaller companies that can't afford the equipment and technology needed for a digital overhaul. Since many companies, especially regional processing centers serving institutions in their immediate area, are in no hurry to make the transition, he can't predict when check processing will become entirely digital. "It's definitely the way the industry is going," he says. "The big question is, how long will it take to make this change?"

The long run of reader sorters
FISC Solutions was founded in 1977 by seven small Maine mutual savings banks to consolidate business services and save each institution the cost of individually processing audits and joint purchases. As the seven banks grew, they incorporated auditing and purchasing services in-house; in the early 1980s, FISC Solutions discontinued these services to court the lucrative market for check processing and loan collection.

Today, FISC is owned by Norway Savings Bank in Norway and Androscoggin Bank in Lewiston, and provides business support to more than 100 clients in everything from loan servicing to payment and check processing. The maze of offices at FISC headquarters in downtown Lewiston attests to the company's ability to grow organically in response to the desires of the market.

In several rooms on the ground floor, hulking silver machines gobble up checks and spit them out in all sorts of predetermined patterns. These machines, called "reader sorters," have been the mainstay of the check processing industry since the 1950s. Paper checks are shipped in bundles from the client to FISC, where an employee feeds the checks to the reader sorter, which takes a picture of the checks and sorts them in bundles according to the client's needs. The image of the check is then examined by another FISC employee in an adjacent office, who verifies the accuracy of the information on the check.

The check is then bundled and forwarded to the Federal Reserve Bank or the Maine Clearinghouse Association check processing exchange at Banknorth in Lewiston, which credits the appropriate bank account before forwarding the check to its final destination at a bank or credit union. FISC charges a few cents per item processed ˆ—- the exact amount depends on the client ˆ—- and makes its money on the efficiency of its turn-around. All told, FISC processes about six million drafts a month. It's a smooth system, one the company has stuck with for nine years. And now, it has to change.

But Sabasteanski says FISC anticipated the shift to digital imagery years ago and added imaging software in 1995 when many other processing companies were still focused solely on reader sorters. Next spring, it will complete a $2.3 million upgrade of its data imaging system in anticipation of a digitized future. Sabasteanksi says the company is ready to incorporate data imaging in all of its processing sectors, which she says is unusual in an industry still tied to reader sorter machines.

Ledford concurs, saying FISC is one of the more technologically savvy and progressive firms he's advised. Converting to digital imagery is voluntary, says Ledford. "You can choose to take advantage of what the new law will allow or not, and we find most people fall somewhere in the middle" between a complete upgrade and no change at all.

Growing the customer base
However, a digitized check processing world will mean a different FISC Solutions. Sabasteanski estimates that 20% to 50% of her current processing staff ˆ— now about 75 strong ˆ— will no longer be needed in several years when data imaging is the norm. Reader sorters will become relics of the past. Bundling checks to mail them to the Federal Reserve hub will no longer be necessary in lieu of data sent via the Internet. The biggest change for FISC, however, will be in its potential client base. According to Sabasteanski, clients outside of New Hampshire and Maine currently aren't interested in using FISC because of the slowness of processing by snail mail.

Once digital checks are the norm, she says, FISC will be able to expand its client base throughout the country. Sabasteanski says FISC's major competitors include Synergent, a payment processing firm owned by the Maine Credit Union League, and Fiserv, an independent international processing firm based in Wisconsin. FISC plans to begin in New England to build a base to rival both the local and international competition. "We are studying and have made contacts with banks in the New Hampshire and Vermont area," says Sabasteanski.

She believes that the cost of upgrading to digital systems also will cause many smaller institutions, which previously had processed checks in-house, to look to outsourcing to businesses like FISC. "We're looking at what opportunities [digital imaging] would present to us as vendors," she says.

Still, Sabasteanksi stresses that the digital image era of check processing, while on the horizon, has certainly not arrived yet. Check 21 requires all financial institutions to recognize data images but has no provisions requiring the institutions to manufacture data images themselves, meaning banks theoretically can take their time upgrading their own processing methods.

Whenever the digital revolution does arrive, Sabasteanksi aims to make sure FISC is ready for it. The reader sorters, while great for nostalgia's sake, are a regular source of stress for her. She's had to hire a maintenance person whose sole job is to monitor the sorters, which she says break down about once a week. Digital imaging, she believes, is the most efficient way for FISC to stay competitive in an industry she thinks will remain strong. "Checks," she says, "are going to be around for a long time."

FISC Solutions

168 Lisbon St., Lewiston

Founded: 1977

President/CEO: Carol Sabasteanksi

Employees: 120 full-time, 40 part-time

Services: Loan servicing, check processing, commercial statement printing, payment processing, courier delivery

Revenues, 2003: $9 million

Contact: 782-6858

www.fiscsolutions.com

Eliminating the float

Check 21 is a federal law that went into effect Oct. 28. It requires banks to recognize "substitute checks," or digital copies of paper checks, in place of the original. The law saves money on transportation of paper checks and can condense check processing time from several days to several hours.

Checks will clear much faster, eliminating check "floating," the method of using the processing day to deposit appropriate funds to cover written checks.
A substitute check is a paper copy of the front and back of the original check. It is slightly larger than the original check and can be printed and processed like the original.

A substitute check is legally the same as an original check if it accurately represents the information on both the front and back of the draft and includes the statement "This is a legal copy of your check. You can use it the same way you would use the original check."

The substitute check must also have been processed by a bank. If you receive an illegitimate substitute check, you can file a claim with your bank for a refund.

Source: "Check Clearing for the 21st Century Act: Frequently Asked Questions," U.S. Federal Reserve

Sign up for Enews

Most Recent

Most Recent

Comments

Order a PDF