Bank Uses Optical System to Reduce Check-Storage Costs

CHASE Manhattan Bank has built a jukebox full of records. But, the records are electronic images of checks, not vinyl imprints of music.

The Chase jukebox is the bank's solution to a storage problem faced by companies that write large numbers of checks. For example, it is not unusual for a large insurance company to write 6 million checks each year. Legally, that pile of paper has to be stored for seven years. An entire industry has developed to store used checks. They are usually shrink-wrapped in plastic to keep moisture out.

The Chase solution involves an electronic imaging system that allows companies to store electronic copies of the checks on a CD-ROM disc. A scanner makes a digital copy of a check. The image is stored on a disc, which looks like a compact disc for music. The discs are stored in the jukebox, which can hold 20 million images. An image, which cannot be altered once it is on a disc, can be accessed within seconds and brought up on a computer screen where it can be checked for forgeries and fraud or simply made into a high quality copy to be sent to a customer.

The technology itself is not new. Optical storage systems have been used for at least 10 years. American Express and Mobil Oil both use such systems to send statements to their charge card customers. And, the Federal Reserve Bank of Boston is running a pilot program involving Treasury checks, such as those fore tax refunds and social security payments.

Chase, however, is the only major bank hoping to get its commercial customers to use and buy this system. Citibank, a competitor, uses optical imaging systems internally for recording checks in its retail banking business. The Chase system will compete against microfiche systems, now widely used by banks and large issuers of checks. This system requires a researcher to spool through reels of film, searching for an image.

``The optical system allows many terminals to share one facility and there can be hundreds of operators accessing that information,'' says Stuart Lipoff, vice president of advanced electronics at Arthur D. Little Inc. in Cambridge, Mass. He notes that optical systems allow customer service representatives to deal directly with problems instead of requiring a research department.

Chase, which processes 2.8 million checks a day in New York State, is now involved in two pilot projects to test the new system. Although the bank will not disclose the names of the companies testing the product, which is called ``ImageAccess,'' the firms are high volume check writers. In a presentation to reporters on Nov. 19, Chase executives used the example of a consumer bill payment agency that writes 250,000 checks a month and a nationwide health insurance provider mailing out 500,000 checks a month. ``These are real life examples,'' a Chase official says.

One of the Chase advantages is the speed of access to pull up checks sent to customers. The health insurance provider retrieves 1,500 checks each month and the bill payment company pulls 3,750 checks per month. ``It is costly and time consuming to locate those checks,'' says Deborah Talbot, a Chase senior vice president. Chase estimates it costs the average corporation $50 a month per square foot of space needed to store and retrieve checks. The bank, however, will not disclose its own fee structure for the product.

Electronic imaging may also help detect fraud. The Chase system, for example, allows an issuer to use a ``windows'' type of software. Thus, an issuer can pull up a signature card in one window and the endorsed check in the second window. The signature can be electronically expanded for closer investigation.

Check fraud is a growing business with the advent of desk top publishing. Banks introduced checks with magnetic ink to try to counter the trend. But, magnetic toner can now be purchased. Bankers are now trying to get large volume customers to advise them in advance before a check is cut. High speed electronic sorters kick out checks which are not listed.