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More Consolidation in U.S. Check Clearing Infrastructure

The oldest check clearing organization in the United States, The Clearing House, announced it has completed its acquisition of Western Payments Alliance's (WesPay) Check Services business, consolidating its own East coast operations with WesPay's West coast operations. Plans for the acquisition were announced on Oct. 20, 2003, and the transaction was completed on Jan. 7, 2004.

The deal makes The Clearing House the largest private check clearing organization in the country.

The merger is a reflection of the industry's need to "rationalize and standardize industry infrastructure," said Nicholas Alex, Senior Vice President/Director of Global Products and Strategy for Bank of America.

Top West Coast banks, including Bank of America, use WesPay's clearing house. WesPay will continue to operate as an ACH Association.

The declining market for processing paper checks (estimated to be about 3-5% annually) is expected to further decelerate-because of growth in electronic transactions and with the recent passage of Check 21. Check 21 allows images of checks to be exchanged instead of the actual paper checks.

"In the past, just about any city of any size had its own clearing house," said Patti Murphy, President of The Takoma Group. "But we can expect those to pretty much fall by the wayside with Check 21. As check truncation and electronic check clearing are ushered in by implementation of Check 21, geographical distance is no longer the consideration it once was." Through several recent acquisitions, The Clearing House has become a payments powerhouse and is now "the only private sector operator of both paper and electronic payments utilities for the financial services industry," said Jeffrey Neubert, President and CEO of The Clearing House. It processes more than 4 million transactions per day totaling $7.8 billion for its 35 participants in the Northeast.

In other words, by all appearances The Clearing House is becoming the chief private sector alternative to the Federal Reserve Banks, Murphy said. It is the only private sector provider with a coast-to-coast network.

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