n 2004, Wells Fargo & Co. became the first financial institution in the United States to transmit a check electronically. The transaction took place at a California ATM the same day the Check Clearing for the 21st Century Act, also known as Check 21, was signed into law.

Wells is now preparing to convert 400 of its Northern California ATMs into envelope-free machines by the end of 2006. And Wells is not alone in its endeavor.

Bank of America Corp., Wachovia Corp., First Tennessee Bank and North Fork Bancorporation Inc. are launching envelope-free ATMs in New York, Atlanta, Washington, D.C., and the state of Washington as early as this month.

"Check 21 was meant to be a catalyst from paper-based to electronic processing," said Celent LLC Analyst Bob Meara. "The rails are being laid and progress is being made, but it is relatively slow."

Banks by nature are conservative, which is why many over the last two years have avoided leading the charge to imaging technology. Wells Fargo, however, is comfortable in the role of pioneer.

"From an ATM perspective, our feeling is that it is the future. The key will be the sooner you embrace it, the stronger lead you'll have with customers in the marketplace," said John Nicholson, Wells' Senior Vice President of Marketing for ATM banking. "It isn't just about the image-capture but all of the benefits customers demand from image technology."

Doug Turner, Product Line Manager of Front Office Solutions for Wausau Financial Systems Inc., said imaging-technology growth has been exponential this year, especially in the areas of corporate, ATM, teller and branch captures.

"If we're having this conversation 10 years from now, most banks will have image capture at the teller line," Turner said.

Nicholson said Wells is looking into image-capture at the branch level. "I think people realize image-capture is better for the customer, so I think all banks are going to an image strategy."

Cash or check?

Imaging technology at the ATM may be relatively new, but several large to mid-sized banks are taking a chance on consumer acceptance.

Memphis-based First Tennessee is launching a series of envelope-free ATMs in Atlanta, Washington, D.C., and New York under its parent company, First Horizon National Corp.

The bank installed an envelope-free ATM in an employee-operations center in Memphis. The trial was surprisingly successful because the ATM experienced an 8% to 10% increase in the number of deposits it received, said Mike Marzec, First Tennessee's Senior Vice President and Manager of Electronic Banking.

"Before we launched into this, we spoke to some of the larger institutions that already [had begun] a pilot program. They're seeing a 98% acceptance rate in the customers using it and an increase in deposits," Marzec said.

One of those banks seeing a high acceptance rate is Wells Fargo. "About 92% of our customers found the envelope-free ATMs easy to use," Nicholson said.

"We have not seen any erosion in deposit-making from existing customers, and we've been very pleased that has not been an issue."

Wells began developing its check-imaging technology two years before Check 21 was signed into law. The process included extensive amounts of customer input that eventually led to the development of "any-which-way" customer bulk-note and check deposit capabilities. The method lets customers deposit checks and cash in any direction and in any order. The technology has led to a 70% decrease in customer time spent at the ATM.

While strides are being made with the widespread deployment of envelope-free ATMs, Meara said implementation has been slow because of costs and the newness of the technology.

"From an investment standpoint, it's not cheap, and banks have already been forced to make ATM investments. Image-capture ATMs are not a must-do and have fallen to the back of the list."

To help FIs with the transition, Wausau developed its ATM Network Deposit Management solution, which handles paper and electronic transactions.

"We feel it's important, because no bank is going to replace ATMs overnight," Turner said.

First Tennessee is not replacing its ATMs with the technology, but the launch of envelope-free terminals in markets outside Tennessee will save the bank construction costs.

"We're not going to have a lot of brick-and-mortar branches, and we're looking for something to help us grow accounts," Marzec said. "We thought the envelope-free technology would help in that endeavor."

Imaging technology may help First Tennessee reduce its number of branches, but branches aren't going anywhere. "I don't see branches disappearing or tellers disappearing," Turner said. "All of the additional new transactions have been absorbed by the ATM, but a certain amount has to be done over the counter."

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