Remote Deposit

Northwestern Financial Review, Dec 15-Dec 31, 2005 by Fisher, Dan

The next step toward virtual banking

Interacting with the customer on a personal level has always been the strong suit of the community bank. No one can do it better when it comes to getting to know the customer, their business and their community. But remote deposit, a new technology hitting the marketplace, has the potential to change how banks reach out to their customers. This change, if ignored however, could erode the existing foundation of every community bank.

Remote deposit (also called "merchant capture"), while receiving a tremendous amount of publicity today as a new and innovative product may, in fact, represent one of the greatest challenges to the community banking franchise. It is not a matter of losing a few auto loans or a home mortgage to an indirect lender. The very basis of the community bank - deposits can be electronically siphoned off and the bank management will not even know it until it is too late!

For the record, there are two ways your business customer can be introduced to this technology: By your institution or by the competition.

Under today's traditional community bank operating model, each bank location has published hours. Commercial customers daily gather payments received, create a deposit and then drop by the bank during those hours. Some banks even have special commercial teller stations designed to specifically address the needs of business customers.

Remote deposit can change all of that. No longer will business bookkeepers need to hurry to the bank before it closes to make the daily deposit. Simply stated, institutions that offer this technology can keep the bank open electronically while the branch is closed and the doors are locked. The warning here is if you do not offer this product, your competition will.

A financial institution that offers this technology can reach out to customers in your community without as much as a branch in your county or a charter in your state. It is truly banking without borders or boundaries - anytime, anywhere to anyone!

So what is remote deposit?

A downstream customer of a financial institution, usually a commercial business that receives paper checks as payments, can create an electronic copy of the check by scanning the check with a small desktop scanner. The company can then transmit that copy of the check to its financial institution and thus avoid having to actually create a paper deposit, run the tape and then transport the deposit to the financial institution before it closes. This concept applies to all of the checks that a commercial enterprise may have received in a given day, hence the term remote deposit or merchant capture.

The benefits to the commercial customer and the financial institution include:

* Not having to transport the physical item means that your customer can send all payments received on a given day right to the processing center of their financial institution. The savings in labor and transportation could be substantial.

* Electronically processing the deposit and then the creation of a substitute check, depending on your processor, may afford you the opportunity to substantially reduce float. These float benefits can also benefit the depositing financial institution depending on whether the organization is set up to clear these items electronically. Some institutions that are piloting this product today, will allow the merchant to electronically deposit their items late into the evening and still receive same day deposit credit.

* From a commercial point of view, the company could transmit the check information and receive payment verification faster, which may mean they can ship product faster.

* Once a file is uploaded and transmitted, the customer can extract a copy of the file and use the information to post to their accounts receivable system thus saving additional processing labor.

There are several remote deposit products available, typically offered by application service providers or developers, and large financial institutions that have treasury management or correspondent departments.

If you are an outsourced financial institution and you are approaching renewal, be cautious about signing a new contract too quickly. Application service providers oftentimes place exclusivity clauses in their standard contract. If you sign the contract, you may be committed to using their remote deposit product even if the pricing and the product offering is not in the best interest to your organization. Review your contract carefully and keep all of your options open.

The remote deposit products that are available as of this writing can be classified into one of three types of services. These are: turn-key processing, modified turn-key and in-house.

The turn-key solution is the fastest and easiest to implement. After the financial institution contracts for this service with the selected service bureau provider, the bank and the identified down stream merchant client go through a short training program. From the bank's standpoint, the training describes features, functionality and contract terms. From the merchant capture client point of view, training shows how to connect the scanner to their desktop PC, access the service bureau application via the Internet and then scan checks for the purpose of making a deposit.