The Emergence of Check Imaging Technologies and the Impacts of to Banks and Consumer and Small Business Customers By perpetuated IPPP Operations Management spring 2013 Term Paper The Emergence of Check Imaging Technologies and the Impacts of to Banks and Consumer and Small Business Customers Thanks in part to advancements in check imaging technology; financial institutions have an opportunity to make major changes to outdated check processing systems. Bank executives are weighing the benefits with the potential risks of updating a system that has been virtually untouched since the sass’s.
These emerging imaging technologies have the potential to remove the high transportations costs associated with transporting physical checks and reduce the flow time (float) it takes between check deposit and funds availability. This paper will focus on the three most popular applications of the new check imaging solutions including Banking Center Remote Capture, Remote Deposit Capture for Small Businesses, and Mobile Banking. Financial institutions around the world are in the midst of an unprecedented transformation in the check-processing arena.
Due to new technologies, high overhead costs, and demands from customers, banks big and small are being forced to abandon the conventional check processing systems that have remained untouched for nearly 50 years. With nearly 55 billion paper items processed annually, the conventional check processing systems are laborious and manual process that prolong fund availability to the customer and require costly transportation vendors to transfer checks from banking centers to check processing site.
Thanks in part to major advances in check imaging technologies, in addition to Check 1 legislation; banks now have the opportunity to move away from the conventional check processing into a leaner process that will likely positively impact both the bank and the customers’ experience. The check processing solutions that utilize high-tech imaging solutions to truncate checks reduces the need for the physical transportation of checks that ultimately delay a customer’s availability of funds.
Conventional Check Processing System To review the conventional check processing system illustrated in my individual essay, the conventional check processing checks was established by the creation of he MICRO coding system (Figure 1) in 1959. The system that banks used to process deposited checks that was built around the MICRO system changed very little from sass’s to the early sass’s. While the nation’s biggest banks no longer use this method, it is still used by many smaller banks with limited capital to implement process changes.
The steps for cashing checks are as followed: (see exhibit 2 for process flow) A customer deposits a check (or checks) at a bank branch (step 1), the checks are picked up by an armored currier (step 2), then transferred to the banks’ regional check processing facility. There, the checks are proofed, encoded, and processed (step 3), and the physical check is sent back the payer’s bank for inclusion in the monthly (or quarterly) statement (steps 7/8).
The funds are verified via the banks Automated Clearing House, or ACH, (step 4) and the appropriate bank accounts are debited and credited (steps 5/6) once verification is made. Review of Issues With Conventional System The conventional check processing system has obvious issues that impact both the bank internally, and also the customer. Overall, the entire flow time (float) is takes up o 4 days in this process. The ACH funds verification (step 4) used to be the bottleneck in this process.
However, due to improvements in technologies, the new bottleneck in the conventional system is the physical transportation of checks from branches to transportation pickups to the entire network of banking centers and it is also an added risk that is vulnerable to theft, transportation delays, and other human related business disruptions. While advancements in funds verification can improved by interbrain advancements of the ACH infrastructure (which has been occurring slowly ever time), the need to transport the checks is difficult also a difficult step to bypass.
Lastly, all of these shortcomings to the conventional system prolong the time it takes for a customer to deposit a check and receive the funds. Ultimately, any process improvements must create a positive customer experience and reduce added exposure to both the customer and the banks. A Closer Look At Check Imaging Truncation With advancements in check imaging capabilities and Check 21 legislation (allowing for banks to us a duplicate image of a check in lieu of the physical check), banks now eave the opportunity to address the process pain-points that have plagued its check processing systems for years.
For this analysis, the focus will be on the various check processing imaging solutions that can optimize the conventional check processing system. While the ACH system can be considered a bottleneck for some banks, there have been made incremental improvements over time. Further, the ACH system improvements requires the cooperation and partnership with the Federal Reserve and the governing body for electric payments, The Electronic Payments Association. Check imaging technology is a popular solution among financial institutions because each bank can apply the technologies differently to fit its current systems.
Check imaging is the process of making a digital image of the check and using that image to replace the physical check from the process. In this step, which is called truncation, both sides of the paper checks are scanned and if there are no errors, rejected items, or illegible checks, the new digital copy is sent to the check processing center for processing. The utilization of check imaging truncation allows banks to discontinue the need to eve physical checks across branches to check processing facilities. For the customer, this reduces the time between deposit and funds availability.
This also reduces unnecessary risks that might delay a check from being processed. For the bank, this saves the costs that come with the transportation of the checks. This also eliminates the risk the bank is exposed to by the transportation runs needed each day. Lastly, the digital copies of checks are much more secured than they would be if they were physically delivered. The truncation process allows for much more robust security measures and organization for all checks deposited with the bank. The check truncation process can be applied in a variety of ways.
The most popular ways to utilize check-imaging technology is through Banking Center Remote Capture (BCC), Remote Deposit Capture for Small Businesses (3RD), and Mobile Banking. Each of these solutions offer unprecedented ways for customers to enter the check depositing process system for their banking needs, and offer the bank an opportunity process flow with the addition of the most common imaging technologies used to image checks. This illustrates the various channels that a check deposit can be made through.
Banking Center Remote Capture Banking Center Remote Capture, as the name suggests, allows banking centers to remotely image the check directly on site using a small scanner (see exhibit 4) instead of having to batch the checks for shipment each day. This can be done in 2 ways: 1 . ) Having a dedicated employee processing all of the checks that are deposited to the banking center in the back using a remote check scanner on that day or 2. ) Giving scanners to all customer-facing bank employees to scan as checks are posited.
Banks can also employ a combination of the two scanners to be used for differing sizes of deposits (use the front office capture for most deposits but if a customer is depositing more than 10 checks, they will be truncated in the back- office). This solution might not be as apparent to the customer, but the implications to BCC is positive for both the customer and the bank that implements this technology. This solution removes the transportation step and allows for the check to be processed immediately.
This truncation of the check occurs 1-2 days faster than he conventional method because there is no longer a wait for the check to be physically delivered and processed. Thus, the customer should receive their funds 1-2 days faster than they could previously, assuming there are no issues with the scan or information on the check. On the bank side, the benefits are immense. The elimination of the transportation and initial processing equipment saves the bank lots of money. The also eliminates the risks associated with the transportation runs.
Remote Deposit Capture for Small Businesses (3RD) Remote Deposit Capture for Small Businesses (3RD) is an imaging solution that empowers bank customers to customers to make their own deposits directly from their business. By giving banking customers whose businesses involve high volumes of checks the option to process the checks with small scanners (see exhibit 4) directly at their place of business. In most cases, the banks will send the small business customers the scanner for free, and charge a service small fee (usually less than it would have been to manage the checks) to support the technology.
Essentially, this method of entering the check deposit channel turns businesses into their own banking center. This solution mutually benefits both the bank customers as well as the banks themselves. This solution gives the businesses the flexibility to receive funds quicker, similar to BCC, but without having to send the checks out for processing. This also saves businesses fees associated with banking services that would usually be incurred. This is a major benefit to accounting departments who manage high volumes of checks everyday.
Further, it allows the businesses to keep its own checks after truncation allowing for better record keeping. On the bank side, the benefits are similar to those of the BCC. The elimination of the transportation and initial business customers that use this, this also saves the bank resources (FEET, various operation expenses) that would normally be used to support these deposits at a Mobile Banking In response to the growing number of consumers who own smart phones with powerful cameras, banks are now using the mobile banking software as an opportunity to offer flexibility and convenience to customers.
Of all the check depositing/imaging trends that are being implemented among banks, the mobile banking option is the most visible and convenient to bank customers. To the customer, this is a huge point convenience and differentiation between banks that offer the service and banks that do not. This step saves customers a trip to the Banking Center (or image ATM) and empowers customers to self-serve the majority of their banking needs via the mobile banking platform, online banking, or through IRVIN (over the phone).
While it might seem like the benefit is all on the customer side, banks receive the same benefits received from BCC and 3RD. The elimination of the physical checks saves larges sums of money in transportation costs, and also allows ankhs to save money on the resources (FEET and operational costs) that were associated with supporting check deposits at the banking centers.
Conclusion While each bank might employ the check imaging technologies differently, the solutions offer banks off all sizes flexibility as to how to address the pain points of the conventional check processing system. The the various check imaging options offer banks an opportunity to remove the bottlenecks that the physical transportation creates and allows for a leaner system. Beyond the benefits banks, the biggest ticking point is that optimizing the outdated systems also adds value to the business, consumer customers, and small business business customer.
Few projects have such sweeping benefits across the board without alienating a customer segment. Since this only offers flexibility, there are few downsides to imaging technologies. Because of this, it has been the popular direction amongst American banks. Exhibit 1 Exhibit 2 Exhibit 3 This process flow demonstrates the end state using the various methods of image capture technologies (BCC, 3RD, Mobile Banking) Exhibit 4 Left- Cannon CRY-180 – Example of Scanner used for BCC