LEWISTON – At 2:11 a.m. on a recent Friday, nothing stirred on downtown Lisbon Street except Lerry Holloman.

A seasoned courier, Holloman placed the last cardboard box in the back of his company’s Ford Escort and closed the hatch.

He and millions of dollars in checks were ready to roll.

At 2:13 a.m. Joanna Stevens hopped in alongside Holloman. The two employees of Financial Institutions Services Corp. crept along Chestnut Street to Canal, on their way to a nightly exchange where Maine’s financial brokers do business.

The destination: a nondescript building in Lewiston that acts as a drop-off point for hundreds of thousands of checks that get processed in Maine every day. The 130,000 checks in the back of the Escort were at the halfway point in their journey. They arrived at FISC that day, a jumble of everything from loan payments and birthday gifts to paychecks. They had been sorted and were now on their way back to the originating banks. By 9 a.m. later that day the receiving banks want to clear those checks and get to the business at hand: making money.

At 2:21, they reach the building. Holloman and Stevens unload their cargo, swipe badges through a keylock and hustle into a monitored room where they sort the cargo. Some checks go into a bin for Synergent, the company that handles check processing for most of the state’s credit unions; others into bins marked for Gardiner Savings, Fleet, Key and other financial institutions. Then Holloman and Stevens pick up the boxes marked for FISC, destined for more sorting.

An armored guard checks on the pair’s progress. Cameras monitor their every move. Security is tight when millions of dollars are at stake.

At 2:26, they’re back on the road. One more stop to drop off paperwork, and they pull up at the corner of Ash and Lisbon streets and unload the new cargo into FISC’s offices. It’s 2:48 a.m.

The third-shift crew at FISC begins to process the new arrivals. Holloman knocks off just after 3 a.m. By 7 p.m., he’ll be back – and his cycle begins again. At least for the time being.

A new federal law may change all that, eliminating some jobs and possibly creating others in Lewiston’s burgeoning check-processing industry – and, in the process, saving banks billions of dollars and even changing the way you balance your checkbook.

Checking progress

Lewiston has become a check-processing mecca, home to two of the state’s largest operations: Peoples Heritage Bank, which processes checks for Banknorth at Bates Mill, and FISC, the state’s largest commercial check processor. Together they process about 16 million checks a month.

The largest bank based in New England, Peoples has seen its Lewiston back-office operation double since 1998 to 800 employees today. About one-fifth of them process checks.

FISC has seen similar growth. Started with three employees in 1977 as a cooperative among 14 banks to handle back-office operations, FISC now has a staff of 145. The company has seen its revenues increase 50 percent over the past five years. A familiar sight on Maine roadways, its 40 couriers crisscross the state around the clock, picking up checks from clients stretching from Fryeburg to Calais.

While the new federal law taking effect in three months may not ultimately hurt Lewiston’s check-processing industry – some even say the law will help – it likely will change the industry’s look forever.

Simply put, the law, called Check 21, will change how we check. Currently, federal law requires that all paper checks be physically returned to their issuing banks – a process in Maine that can mean one check might be handled by four couriers, processed as many as 15 times by four institutions in two days. Time and money.

The law will allow financial institutions to make images of checks and to send them electronically to their destinations.

The ripple effects could be widespread among consumers, banks and local check processing centers.

• Banks stand to save $2 billion a year nationally in operating costs.

• Eventually consumers will no longer get canceled checks returned with their monthly bank statements, as more banks make the conversion. Instead, they will get pictures of the checks.

• More significant for consumers: Checks will clear faster. Instead of taking two to seven days for checks to clear, transactions will be almost instantaneous as more banks come on board with Check 21 and electronic imaging. Gone will be the days of writing a check on Tuesday and making a deposit on Wednesday or Thursday to cover it.

“It’s the most important message – and what I tell my own children – please remember to have funds in there to support the checks,” said Christopher Pinkham, president of the Maine Association of Community Banks. “They clear a lot faster than you think.”

• And for Lewiston, Check 21 could mean additional business for its two check-processing centers. Analysts predict most banks will choose to send their check processing work to outside companies or consolidate check processing with other banks, rather than invest in new technology.

Pinkham said it makes a lot more sense for a bank to hire a firm such as FISC to process its checks for a fraction of a cent versus spending thousands of dollars for a check sorter that gets used only one hour a day.

A new era

Check 21 takes effect this October, more than three years after the Sept. 11 terrorist attacks that led to its creation.

At the time of the attacks, air traffic was grounded for four days, effectively paralyzing the country’s banking industry. Planes loaded with checks – from paychecks to mortgage and credit card payments – couldn’t reach their destinations. The delay meant the Federal Reserve Bank System, the government’s bank, had nearly $47 billion in checks in transit, more than 100 times the normal level. People couldn’t get their paychecks, creditors didn’t receive payments and banks lost millions in unearned interest.

The losses drove the government to find a way to make check processing easier.

It only had to look to the commercial world, where electronic processing of check payments has been growing for years. The result has been a steady decline in the volume of paper checks circulating in the U.S. economy.

In fact, the Fed has tracked a drop since 2000 of about 5 percent a year in the number of paper checks. The upshot: This year the nation’s bank closed 13 of its 45 check-processing centers.

The Electronic Check Council saw a 154 percent increase – a whopping 1.3 billion transactions- in electronic check payments from 2002 to 2003. It predicts a similar increase this year and steady growth for three to five years beyond that.

Electronic checking refers to the many payment methods that result in an electronic withdrawal from a checking account. It’s when you give the account information from the bottom of your check to someone over the Web or the phone to make a payment; when you mail a check to a creditor who converts it to an electronic one; and when a store cashier scans your check and then hands it back to you moments later.

“Consumers are moving toward debit and credit card payments anyway,” said Michael Herd, director of public relations for the National Automated Clearing House Association. “E-checks may be an interim form of payment processing, then could disappear completely.”

There are powerful incentives at play. It costs the Fed 5.1 cents to clear a paper check but only 1.1 cents to clear an electronic one; in 1995, the costs were nearly identical. Once Check 21 is fully implemented, which is likely to take up to two years, the banking industry could reduce its check processing costs by $2 billion a year, according to the Fed.

That estimate includes a reduction of $250 million in transportation costs alone, as well as improved efficiency in clearing bounced checks, smaller losses from check fraud and faster deposits and withdrawals.

Banking on change

Although the Fed closed just under one-third of its check-processing centers nationally, no one is predicting local institutions will follow suit. But the shift from paper to electronic processing could have implications for the nearly 300 people employed locally at check-processing centers.

FISC welcomes Check 21. Over the last 18 months it has invested $2.5 million in upgrading software and equipment to more efficiently handle electronic-based transactions.

“It’s really changing how banks and check processors look at the industry,” said Charles Mercer, FISC’s marketing chief. He predicts banks will continue to process checks internally until it gets too complicated.

“That opens up possibilities for companies like FISC,” he said. The company recently acquired the check processing work from two New Hampshire-based banks.

Mercer said that in the highly competitive world of finance, a bank is always looking for ways to increase revenues and deliver services to its customers. If it can invest in opening a new branch office or providing a new service such as on-line banking, it’s more inclined to do that rather than invest in back-office operations such as check processing.

“We’ll be ready for them,” said Mercer, who said FISC plans to grow about 10 percent per year. It is already pitching itself to banks that might want to outsource check processing.

Herd predicts that as Check 21 gathers steam, more banks and financial institutions will choose to outsource their processing to companies such as FISC or consolidate their operations with one another.

“It’s really just a business decision,” said Herd. “They don’t need all this capacity.” Nationally, some larger banks have already contracted back-office operations to private companies. State Street Bank and Wachovia eliminated their check-processing centers and sent the work elsewhere.

Peter Verrill, chief operating officer for Banknorth, said that’s unlikely to occur at his bank. Although the volume of paper checks may be decreasing, the bank is adding new accounts at a rate that easily picks up the slack.

“We’re not worried, ” he said.

In fact, when the Oct. 28 launch date for Check 21 arrives, it will be “anticlimactic,” predicts Salvatore Grasso, senior vice president of payment services at Banknorth.

The bank has been using digital imaging since 2001, when it began to convert to the new technology for in-house efficiency. Neither employees nor customers will notice much new come October, said Grasso.

Despite that prediction, Stevens, the assistant manager at FISC, said Check 21 is the buzz among FISC employees.

“People expect mostly good things from this,” she said. “The idea that we could begin processing checks before we have them in our hands is amazing.”

It also means couriers like Lerry Holloman may go the way of the milkman. Ultimately, that’s the point, says Mercer.

“Shrinking the costs and increasing the efficiency is what’s driving this whole thing. The point is to save money.”