Kansas community bank gets full advantage of Check 21

Northwestern Financial Review, May 15-May 31, 2005

Tiny First National Bank in Elkhart, Kan., is as far as geographically possible from the Federal Reserve Bank of Kansas City, Mo., while still being within the borders of Kansas. Until recently, the $51 million bank contracted a courier service to ferry its daily cash letter the 418 miles to the Fed; the driving distance forced the bank to stop accepting deposits just after the lunch hour so that transit items could make collection deadlines at the Fed, said Joy Elder, the bank's vice president.

The courier service cost the bank nearly $1,000 per month, a substantial enough amount but worth it had the service been reliable. But it wasn't. Some days, if the weather was bad, the courier refused to make the trip, which forced Elder's husband to drive the route. Then one day, when weather wasn't even a factor, the courier just didn't show up. Elder later learned the company had declared bankruptcy.

"When we started the bank in 1985, our courier bill ran around $200 a month," Elder said. Their most recent contract increased to $1,226 per month, although Elder said they were able to negotiate that down to $946 per month temporarily. In addition, the courier contract forced the bank to use a data processor in Hutchinson, Kan., further limiting the bank's ability to negotiate processing fees in its own best interests.

When Check 21 took effect last October, First National was already capturing check images; it wasn't yet able to send imaged cash letters to the Fed, however, without incurring additional courier costs. That issue has since been resolved with the electronic branch capture system available through the bank's core processor, Fiserv.

The bank had switched to Fiserv for data and check processing in 2004 and became the first bank to take the process end-to-end with its electronic branch capture system with electronic cash letter transactions. Fiserv's Kansas City office will print image replacement documents to present to the Fed, Elder said, and redundant systems used during the transition, including the courier service, will be eliminated.

"First National represents a full electronic branch capture," said Ted Umhoefer of Fiserv. "It's a model we will expand throughout the country to provide high quality transaction services to institutions no matter what the geographical restrictions."

"Best of all," Elder said, "we can change the cut-off time to the closing of our bank doors, rather than having a deadline in the middle of the day during our busiest operational time."