Dropping Check Volumes But Expanding Opportunities

Today, Oct 2004 by Moran, Ed

Leveraging the Investment in a Remittance Processing System

While paper check volumes may be dropping, the scope of work that can be handled by a remittance processing system is growing, offering many new service and revenue opportunities.

Last year electronic payments in the U.S. exceeded traditional paper checks for the first time. During the same period, ARC e-check transactions grew nearly ten-fold in volume. Few, however, in the financial industry could have anticipated all the powerful forces that are contributing to the steady drop in check volumes. Technology advances, compounded by earnings and competitive pressures, regulatory compliance, and shifts in consumer behavior have set the stage for dramatic changes in payment systems.

The processing of paper checks has remained largely unchanged since the 1950's. However, don't expect the status quo to be maintained much longer. The passage of Check 21, scheduled to take effect this month, represents the most radical change to hit the check processing industry since the introduction of magnetic ink character recognition (MICR) 40 years ago.

The projected 3% to 5% annual decline in check volumes, along with the impact of Check 21 and image exchange over the next four years, translates into a 50% increase in excess processing capacity. While the remittance workload is getting lighter, the high fixed cost of operations means that it will cost more to process each check. The challenge many organizations-both lockbox and in-house processors-face is how to manage down the cost of their massive check processing infrastructure, while trying to determine the best strategy for embracing the electronification of payments. Let's consider how the future might look.

ARC and Check 21 Pave the Way for Many More Features

ARC provides a quick opportunity to satisfy retail customers using ACH transactions, while Check 21 will drive implementation of a more definitive, real-time form of processing and truncation with checks converted to images. Rather than view them as "either-or" alternatives, the smart forward-thinking organization will view them as part of a continuum of deposit options that will grow and change in the future.

Remittance operations will be looking for vendors that can support multiple deposit scenarios. A strong front-end "decisioning engine" that can direct each payment to the most appropriate deposit channel, based on overall savings, will be required for a profitable future.

Remittance processing will move from the single function of moving checks into a world where multiple payment methods, imaging, and electronic business processes must be supported. Many managers of large, traditional "paper-bound" remittance operations will be concerned about the roles that they, and their organization, will play in a world where electronic transactions outnumber paper ones. Unless careful, they may be stuck managing what senior executives consider the company's biggest white elephant-its traditional paper-based remittance shop.

But that need not happen. Your remittance processing software has the potential to become an enterprise payment system. Such a system will have the business logic, character reading, imaging, archiving, electronic workflow, Internet access and database tools that can result in numerous improvements throughout an organization. The same technology that will be used for check processing and imaging under Check 21 legislation, will also support a plethora of other business functions, including full-page document management and electronic workflow, while creating new revenue opportunities.

A Platform For the Future

That means your remittance system can provide a solid platform for flowing information about customer payments, orders, and inquires, throughout and beyond your company. Imagine an enterprise payment system that consolidates processes across multiple channels, such as lockbox, branch capture, telephone and Internet payments, and even provides real-time transaction processing.

Such a system will eliminate the high-functioning "silos" that typically support each payment type - ACH, Web, TEL, credit/debit cards, checks and the duplicate processes for common functions, such as A/R output files, return item handling, reconciliation, customer service and marketing. Substantial savings will be realized and companies will be better able to control fraud and to track costs and revenue across the enterprise. By leveraging this new sophistication, you can speed payment receipts, lower processing costs, streamline workflow across the organization, generate additional revenue and accelerate order fulfillment. All of this leads to greater profits and enhanced customer satisfaction, which support management initiatives to reduce costs, increase revenue and manage fraud.

A good enterprise payment system has the potential to give your organizationwhether you're a lockbox processor or in-house remittance shop many incremental business advantages, including:

* Better communication with customers. Payment coupons are a major channel of communication between you and your customers. They can become more useful and customer friendly when you apply the latest intelligent character recognition (ICR) capabilities. With ICR, your coupons can serve as order forms, address change notifications, requests for information, and even opinion polls.