Fire the Messenger: Couriers Losing Business to Imaging
As more banks begin to transmit digital check images across the country, couriers that haul paper checks are starting to feel a squeeze.
That's because a growing number of banks have concluded that paying for long-distance shipping is more expensive than transmitting images to a data center near a paying bank, converting them to image replacement documents, and then either delivering the documents the last few miles themselves or hiring a courier to do so.
Banking industry observers have long warned that a decline in courier shipments would probably trigger a fee increase as the couriers seek to cover their fixed expenses from a shrinking pool of bank customers. This fee increase could prompt more banks to cut their courier use and further drive up fees.
"Nobody thinks about what it's going to do to us," said Brad Johnston, the general manager of ASAP Land Express Inc. of Riverside, Mo., which runs truck and plane routes in Kansas, Missouri, and Oklahoma. The shift to images will "change the courier industry forever."
He said ASAP has already received its first cancellation notice, from a small bank in western Kansas that used ASAP to send about 10,000 checks a month across the state to the Federal Reserve Bank of Kansas City.
Because many banks share courier expenses, Mr. Johnston said, his rates are certain to increase as he loses customers. "Our rates are based upon a route. You may have five or ten banks that you're bringing in at one time," he said. "If you have ten banks on that route and three drop off, you can't run that route any cheaper. The other seven have to pay more. And if two more drop off, the other five have to pay more."
ASAP, like other couriers, is seeking other cargo to replace the lost checks, he said. Ten years ago it generated 90% of its volume from checks, but that percentage now is only 30% to 40%. ASAP has added pharmaceuticals and auto parts to its delivery services, and it recently began using refrigerated trailers to deliver frozen foods to fast-food restaurants.
"We're trying everything we can to diversify," Mr. Johnston said. "We know the banks are going away."
As more banks start using imaging systems instead of couriers, the pressure will grow on other banks to follow suit, he said. "They're going to have to change over, because the courier costs are going to skyrocket." Rates could quadruple, and eventually "all of them are going to convert."
Though this issue has been a long time coming, it has become more pressing since the Check Clearing for the 21st Century Act, which made IRDs a legal replacement for the original checks, took effect in October.
The Fed and a handful of outsourcing vendors have started offering services that let banks transmit images to a data center, where they can be converted into IRDs. Advocates of the process, which has become a growing threat to couriers, say it is faster and cheaper than hauling the original paper items by plane or truck.
When Uwharrie Capital Corp. began converting checks into images last month, "we ended our relationship with our courier back and forth to Greensboro," said Jackie Jernigan, an executive vice president at the Albemarle, N.C., holding company.
Uwharrie outsources its item processing to Fidelity National Financial Inc. and now transmits the images to Fidelity National's data center. The service allows on-us items to be settled electronically, and transit items are printed out as IRDs, which Fidelity National delivers to the Fed's Charlotte branch.
Curtis L. Hage, the chairman and chief executive of Home Federal Bank of Sioux Falls, S.D., said that transmitting images could also help rural banks and thrifts improve customer service. Mr. Hage, a past chairman of America's Community Bankers, has told Congress that imaging would help his $846 million-asset thrift meet its daily clearing deadlines and reduce its check processing costs.
Home Federal has not converted its check-clearing operations to image-based systems, but Natalie Solberg, a senior vice president at its HF Financial Corp., which has branches in 21 South Dakota cities, said she is already anticipating that declining demand will force couriers to reduce service in her region.
Many couriers also carry interoffice mail, loan applications, and other paperwork, she said. "If the courier goes away, we'll have a need to move that mail in a different way. We've already been researching other ways to get supplies to the branches."
Home Federal is shifting much of its internal communications from paper to e-mail and automated workflow systems, because paper is "not the way we communicate anymore," she said.
The Messenger Courier Association of the Americas, an industry trade group, said there are about 10,000 same-day couriers in the United States, most of which generate $10 million of revenue or less per year.
Christopher T. MacKrell, the chairman of the group's government and legislative affairs committee, said that even though long-haul couriers will probably be affected first by the growing use of imaging, those that carry checks for shorter distances — for example, from branches to item-processing centers — will also feel the effects.
Mr. MacKrell is a vice president and the manager of business development at CD&L Inc., a South Hackensack, N.J., company that operates a ground transportation network with 75 facilities on the Atlantic and Pacific coasts. His company, which specializes in short hauls, is already feeling the effects of the new technology.
Delivering checks has been "the cornerstone of the local courier industry over the last 30 years," he said. "Even a couple of years ago we were going to the branches twice a day, even three times a day. Now we're only going once a day."
