Now that checks are being “digitized” there are so many possibilities in the market not the least of which is data mining. Many companies and non profits that take checks today are keying in the check writer information in order to preserve their data base of “customers” or “donors”. Keying in information is expensive and error prone and many companies can not afford it. With new technology such as ACHeck21 that is no longer the case. Technology can electronically capture and parse the information – saving literally millions of dollars in some cases. By electronically capturing the information on the checks they receive a business or non profit can not only create a data base to service their customers but demographic data can be mined. For example – how many people from a certain Zip Code donated over $500 to your charity or political party? OR, who purchased a pizza in a certain franchise during a special event and what zip code did they originate from? Having this information can also help in other ways. For example companies that ship a product can rest a little easier if the ship to address and the address on the check match.
There are some challenges to be met but the benefits can far outweigh the challenges.
Technical Issues:
The technology to capture the routing/account number/check number and amount is old school and readily available. However, ACHeck21 offers emerging technology that will also capture the check writers name, address, city, state, zip, and phone and parse it into a data base. The data base can then be used for research, marketing and verification. It is this emerging technology that holds a lot of promise for many businesses.
Data mining should be part of an integrated check imaging and processing solution that includes:
Electronic Deposit (offering both ACH and Check21 file formats)
A/R update
Searchable Archival of images (searchable by all parameters captured during imaging including check writer information)
Distributed Capture (including eCheck and Tel)
Remittance processing (including virtual stubs)
Return check management (including re-presentment or export of files to third party collection agencies)
Extensive on line reporting allowing hierarchical organization on a need to know basis and easy reconciliation with bank deposits
Highly secure
Verification (optional)
Flexible
Legal Issues:
.
If not properly used and protected capturing non public information from a personal check may be illegal under various Federal laws such as the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act[1]. A casual reading of the Act would indicate the Act applies to Banks and their “consumers”. However, it also applies to non banking activities which are listed out on the Federal Trade Commissions web site. In addition your bank may require a “Privacy Policy” in certain cases. The objective of the law as I read it is not to keep a merchant from knowing his customers’ information but to keep the merchant from selling or giving that information to non related third parties – who will then use (abuse) the information to enrich themselves at the consumer’s expense.
Not all businesses are required to be compliant with Federal laws governing privacy. However, even if your business is not regulated by law, the consumer and some business owners have come to expect that their non public information will be held in the strictest of confidence, that they will be notified of any breach of this rule and that at some point in the relationship they have or will be furnished with a privacy policy. So it behooves anyone handling checks to have a way to secure non public information whether in electronic form or physical form. To do otherwise may expose a business to risk of reputation, litigation and loss of business.
[1] The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, was enacted by Congress November 12, 1999. The Act allowed commercial and investment banks to consolidate. However, among other things the Act provided a Financial Privacy Rule which requires financial institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. The privacy notice must explain the information collected about the consumer, where that information is shared, how that information is used, and how that information is protected. The notice must also identify the consumer’s right to opt-out of the information being shared with unaffiliated parties per the Fair Credit Reporting Act. In summary, the financial privacy rule provides for a privacy policy agreement between the company and the consumer pertaining to the protection of the consumer’s personal nonpublic information. There are exceptions to the opt out provisions. The client cannot opt-out of: information shared with those providing priority service to the financial institution; marketing of products or services for the financial institution; or, when the information is deemed legally required.
Sunday, November 2, 2008
Data Mining Checks - As part of Remote Deposit Capture
Sunday, September 14, 2008
Check Processing Software – beware of pricing choices
We are constantly running across customers that are trying to make a decision on whether to purchase Check Processing software on a pay as you go model or the more traditional capital purchase model (with annual maintenance or per seat fees). Both models are now common in the market place and both have advantages and disadvantages. Here is how you know what is right for you.
Its simple – if you have a strong IT department, have experience processing checks electronically, don’t expect the market to move faster than you can anticipate and have accurate costs analysis – pick the less expensive solution. The problem is with today’s market place, the pace at which technology is changing and historical rate at which even the smallest depositor (home deposit) is converting paper to electronic deposits – it is almost impossible to meet all the criteria listed.
The Capital Purchase model often involves the purchase of one or more licenses. This is sometimes a single purchase to set your company up on the new software platform and then per seat licenses for each user. In addition to setup costs, there are annual maintenance fees and hourly rates to accommodate changes. Add to this the fact that some Capital Purchase vendors charge per items fees as well.
The Per Item model charges a fee each time a check or image is acquired using the software. The per item fee covers on line training, set up, license fees, maintenance and routine changes. There may be modest fees to install or integrate to a company’s bank or in the case of a bank their core processor.
In the case of a Capital Purchase model the argument is that the customer can perform as many transactions as they like and their costs are fixed. The Per Item model argues that you have no up front capital costs and since they get paid when you get paid you have their full attention and commitment. Both arguments are correct on the surface.
However, I would argue that in today’s market the Per Item model is the best solution – assuming pricing is comparable. In most cases we see Per Item pricing is not only comparable but the Per Item model is actually less. The calculation to compare is easy: For the Capital Purchase model take the license fees, costs of integration (your costs and theirs), the per seat fees, training fees, the first annual maintenance fee(s), plus estimate a modest amount for at least one change during the first year, add the costs of money paid up front – then – divide by the total transactions you actually expect to do in the first year. This will equal your per item fee. Add the per item fee to any per item fees the Capital Model may have and compare that to the Per Item model. The Per Item model should be easier to figure. Take their estimated integration costs (if any) and divide by the total transactions you actually expect to do in the first year and add that to their Per Item fees. Compare the results to the Capital Model results.
Some may argue that the Capital Model will be more expensive the first year but will trail off over time. While this may be true it does not follow that the software purchased in the Capital Model will be relevant over time. In which case there is no incentive for the Capital Model vendor to “fix it”. However, they will gladly sell you a new install. Whereas the Per Item model vendor is constantly striving to keep their software up to date since they only get paid with transactions.
Its simple – if you have a strong IT department, have experience processing checks electronically, don’t expect the market to move faster than you can anticipate and have accurate costs analysis – pick the less expensive solution. The problem is with today’s market place, the pace at which technology is changing and historical rate at which even the smallest depositor (home deposit) is converting paper to electronic deposits – it is almost impossible to meet all the criteria listed.
The Capital Purchase model often involves the purchase of one or more licenses. This is sometimes a single purchase to set your company up on the new software platform and then per seat licenses for each user. In addition to setup costs, there are annual maintenance fees and hourly rates to accommodate changes. Add to this the fact that some Capital Purchase vendors charge per items fees as well.
The Per Item model charges a fee each time a check or image is acquired using the software. The per item fee covers on line training, set up, license fees, maintenance and routine changes. There may be modest fees to install or integrate to a company’s bank or in the case of a bank their core processor.
In the case of a Capital Purchase model the argument is that the customer can perform as many transactions as they like and their costs are fixed. The Per Item model argues that you have no up front capital costs and since they get paid when you get paid you have their full attention and commitment. Both arguments are correct on the surface.
However, I would argue that in today’s market the Per Item model is the best solution – assuming pricing is comparable. In most cases we see Per Item pricing is not only comparable but the Per Item model is actually less. The calculation to compare is easy: For the Capital Purchase model take the license fees, costs of integration (your costs and theirs), the per seat fees, training fees, the first annual maintenance fee(s), plus estimate a modest amount for at least one change during the first year, add the costs of money paid up front – then – divide by the total transactions you actually expect to do in the first year. This will equal your per item fee. Add the per item fee to any per item fees the Capital Model may have and compare that to the Per Item model. The Per Item model should be easier to figure. Take their estimated integration costs (if any) and divide by the total transactions you actually expect to do in the first year and add that to their Per Item fees. Compare the results to the Capital Model results.
Some may argue that the Capital Model will be more expensive the first year but will trail off over time. While this may be true it does not follow that the software purchased in the Capital Model will be relevant over time. In which case there is no incentive for the Capital Model vendor to “fix it”. However, they will gladly sell you a new install. Whereas the Per Item model vendor is constantly striving to keep their software up to date since they only get paid with transactions.
Friday, August 29, 2008
Who makes money with Remote Deposit Capture?
What a great question! Doug Hartsema, SVP of JPMorgan Chase & Co. asked this question to a panel of distinguished guest at the recent TAWPI Conference in Orlando Florida this past weekend. All the answers save one pointed to the bankers who wanted to provide the service for free!
It has been proven throughout history that the market determines price, profits and success. No matter how wonderful your product or how determined you are to sell it, in the end the market will set the bar.
In response to a question I asked about “Is this (RDC) a business solution or a banking solution?” the panel correctly pointed out that historically RDC grew out of Check 21 which was intended as a banking solution. However, only one member of the panel said their company focused on the end user. She made it clear that the solution must be business focused.
Obviously we agree. In fact, the banks that only want to capture deposits will have to give it away for free. You don’t even need to think about it to know that when the bank asks you to send your deposits electronically your first inclination is to ask why? The standard answer is to save a trip to the bank and get your money there faster. While there may be some advantage to not having to go to the bank it is hard to quantify because many businesses have cash or plan trips to the bank around other errands. Add to this the fact that even the most robust bank sponsored RDC seems to be bank focused with little in the way of business solutions. Banks are just now incorporating features in RDC that update bookkeeping systems.
We charging for the solutions we offer and our customers are willing to pay. The question is why? And the answer is simple – “Because the customer is making money”. When the customer makes money everyone can make money!
In fact, many businesses are hearing about RDC not from their bank but from their professional associations and from companies like DCS. Here is why:
Software like ACHeck21 not only saves trips to the bank and gets the available funds into a business account as fast (or faster) than a banks RDC solution but it also provides business solutions that create value for a business. Not only will ACHeck21 process back office conversion, remittance processing, remote deposit, check 21 and the other forms of check processing but it offers enhancements. For example ACHeck21 offers a secure gateway that manages a whole host of services and it updates bookkeeping systems including Quickbooks, Archives images of checks (and stubs) and verifies checks. From the Gateway a business can see and represent returns or process an echeck or upload ACH files. Reporting is robust and flexible. Enrollment takes minutes not days or hours. When a business makes money they are willing to share – that means we all make money!
It has been proven throughout history that the market determines price, profits and success. No matter how wonderful your product or how determined you are to sell it, in the end the market will set the bar.
In response to a question I asked about “Is this (RDC) a business solution or a banking solution?” the panel correctly pointed out that historically RDC grew out of Check 21 which was intended as a banking solution. However, only one member of the panel said their company focused on the end user. She made it clear that the solution must be business focused.
Obviously we agree. In fact, the banks that only want to capture deposits will have to give it away for free. You don’t even need to think about it to know that when the bank asks you to send your deposits electronically your first inclination is to ask why? The standard answer is to save a trip to the bank and get your money there faster. While there may be some advantage to not having to go to the bank it is hard to quantify because many businesses have cash or plan trips to the bank around other errands. Add to this the fact that even the most robust bank sponsored RDC seems to be bank focused with little in the way of business solutions. Banks are just now incorporating features in RDC that update bookkeeping systems.
We charging for the solutions we offer and our customers are willing to pay. The question is why? And the answer is simple – “Because the customer is making money”. When the customer makes money everyone can make money!
In fact, many businesses are hearing about RDC not from their bank but from their professional associations and from companies like DCS. Here is why:
Software like ACHeck21 not only saves trips to the bank and gets the available funds into a business account as fast (or faster) than a banks RDC solution but it also provides business solutions that create value for a business. Not only will ACHeck21 process back office conversion, remittance processing, remote deposit, check 21 and the other forms of check processing but it offers enhancements. For example ACHeck21 offers a secure gateway that manages a whole host of services and it updates bookkeeping systems including Quickbooks, Archives images of checks (and stubs) and verifies checks. From the Gateway a business can see and represent returns or process an echeck or upload ACH files. Reporting is robust and flexible. Enrollment takes minutes not days or hours. When a business makes money they are willing to share – that means we all make money!
Saturday, August 23, 2008
TAWPI - The Association for Work Process Improvement
This coming week many people form the check processing industry will be at the TAWPI (The Association for Work Process Improvement) trade show in Orlando. In preparation for this event I have been looking back at this year and wondering about the next 12 months. It seems the industry of processing paper checks and paper in general is going through huge technological changes.
In the past year we have seen the industry explode into Back Office Conversion. In addition Remote Deposit Capture continues to grow. While on the sidelines my company Diversified Check Solutions has been working with on line mail delivery, data mining of consumer information from their checks, BOC verification, check recovery technology, electronic checks and more.
It is certainly an exciting time in for Electronic Check Processing and it is being driven by the work process improvements (spelled – Efficiencies) it affords businesses. In other words by creating a more efficient work place we have something businesses are willing to pay for – provided the costs do not exceed the value of the improved efficiencies we have created.
In fact, as we automate and “electronify” the issuance of checks and acceptance of checks the question I have is: “Will checks start to compete with Credit Cards??” I don’t know the answer but can offer some interesting thoughts.
The efficiency offered by plastic payments drives the credit card industry in large part. As a consumer I am more efficient and realize better use of my time because I don’t have to save up for a purchase. I can go out and buy what I need. Businesses realize efficiencies because the purchase runs smoother and faster with plastic compared to cash or checks plus they are guaranteed payment if they follow the rules.
Today checks are following the same path as credit cards. Companies are guaranteeing payment if the merchant follows the rules; checks are being settled electronically and business are enjoying the efficiencies mentioned above. Plus checks are less expensive for both the customer and the merchant. What is missing? The issuance of checks electronically is the missing ingredient and the networks to make electronic issuance of checks feasible. When that problem is solved there will be no difference between electronic checks and plastic – except one thing. Checks will be less expensive.
As we attend the Work Process Improvement Conference in Orlando Florida to promote our check processing engine we are excited at the possibilities that exist within this industry. Automated Work Flow Improvement is a huge field with more impact than we know. Many of the processes that are being developed for automation of work flow take us closer to the full electronification of checks.
In the past year we have seen the industry explode into Back Office Conversion. In addition Remote Deposit Capture continues to grow. While on the sidelines my company Diversified Check Solutions has been working with on line mail delivery, data mining of consumer information from their checks, BOC verification, check recovery technology, electronic checks and more.
It is certainly an exciting time in for Electronic Check Processing and it is being driven by the work process improvements (spelled – Efficiencies) it affords businesses. In other words by creating a more efficient work place we have something businesses are willing to pay for – provided the costs do not exceed the value of the improved efficiencies we have created.
In fact, as we automate and “electronify” the issuance of checks and acceptance of checks the question I have is: “Will checks start to compete with Credit Cards??” I don’t know the answer but can offer some interesting thoughts.
The efficiency offered by plastic payments drives the credit card industry in large part. As a consumer I am more efficient and realize better use of my time because I don’t have to save up for a purchase. I can go out and buy what I need. Businesses realize efficiencies because the purchase runs smoother and faster with plastic compared to cash or checks plus they are guaranteed payment if they follow the rules.
Today checks are following the same path as credit cards. Companies are guaranteeing payment if the merchant follows the rules; checks are being settled electronically and business are enjoying the efficiencies mentioned above. Plus checks are less expensive for both the customer and the merchant. What is missing? The issuance of checks electronically is the missing ingredient and the networks to make electronic issuance of checks feasible. When that problem is solved there will be no difference between electronic checks and plastic – except one thing. Checks will be less expensive.
As we attend the Work Process Improvement Conference in Orlando Florida to promote our check processing engine we are excited at the possibilities that exist within this industry. Automated Work Flow Improvement is a huge field with more impact than we know. Many of the processes that are being developed for automation of work flow take us closer to the full electronification of checks.
Tuesday, August 12, 2008
Separating the forrest from the trees - Remote Deposit Capture
There are many great companies offering Remote Deposit Capture. So many it is hard to distinguish one from the other. It is especially hard for those that are not immersed in the technology. However, whether you are seeking a Remote Deposit Capture solution for your company or for a bank who wants to offer it as a service the stakes can be high. Here are some things to consider…….
Both companies and banks are confronted with the fact that paper checks are being replaced by a variety of electronic transactions. How much time and resources do you invest to convert paper checks to electronic transactions when customers are moving to the internet, debit cards, IVR systems, credit cards and mobile banking? ON the other hand a wrong decision will most likely mean that your company or bank will spend more than needed, be at a competitive disadvantage and be forced to use work arounds in the short term.
Here are some marketing statements along with simple questions to ask and the ideal answers:
___________________________________________________________________
Marketing Statement:
Our Check Scanning software works with ABC Hardware.
Question:
Is this the only hardware it will work with?
Ideal Answer:
No it will work with any major reputable brand of equipment.
Pitfalls:
This check scanning software is designed around one piece of equipment. This puts your company or bank at double risk. Not only are you investing your future in the Software Company but also in the hardware company. You may be subject to problems at both companies and there may be times when the companies no longer like each other. You will end up the victim.
____________________________________________________________________
Marketing Statement:
Our product can be deployed in a centralized or distributed work environment.
Question:
How is your Check Scanning Software installed in both the centralized and distributed environment?
Ideal Answer:
Our Check Scanning Software gives you options depending on your needs. It may be installed on your servers and distributed through your network OR installed on each client in a distributed fashion. In both cases the cost is the same and the services are the same. You will not be required to buy dedicated computes at each location. Your existing servers or clients can be used.
Pitfalls:
Some software requires that you purchase stand alone clients or servers because it is unstable in an environment with other software. Make sure the imaging software you use is reliable and stable in any environment. After all most businesses do not want to buy equipment to solve someone else’s software problems nor do you want a significant capital outlay up front.
____________________________________________________________________
Marketing Statement:
Our product reduces processing costs.
Question:
What are you counting as processing costs?
Ideal Answer:
We count cost savings as the savings in banking, personnel and overhead costs after deducting our software fees, equipment costs and clearing (bank) fees.
Pitfalls:
Many vendors count only soft savings of time and motion. They do not deduct their fees or allow for banking costs. Many vendors play on the belief by some that the customer has no banking costs associated with processing checks - but this is a myth. Either the bank is charging per check or the bank is holding funds (compensating balances) to offset costs with earned overnight interest. In either case some provision should be made for banking costs. The reason most vendors do not count banking fees is they want to be able to separate themselves from the bank thus making their costs seem less. However, since most customers are buying this technology to convert paper checks to electronic transactions banking fees will come into play.
____________________________________________________________________
Marketing Statement:
We send your deposits to the bank of your choice.
Question:
Do you send them direct or through a clearing account? Have the costs associated with a clearing account been identified in your pricing or are these costs separate? If you send them direct to our bank, do you also integrate your technology to our banks technology or do you leave that up to us?
Ideal Answer:
We can and do send either direct to your bank or to your bank through our clearing account. Costs associated with our clearing account have been identified and are included in the pricing quoted. If you send them direct to your bank we will handle the integration but since we do not know your bank we cannot price this before talking to your bank.
Pitfalls:
Sending deposits can mean many things in the RDC world. There are two basic file types being “sent to the bank” – Check 21 and ACH. Remote Deposit offered by most banks relies on the Check 21 file format. Remote Deposit offered by vendors may use either. They both have advantages and disadvantages. Further sending a file to a bank may or may not result in a deposit depending on whether or not the bank can take the file and use it. Accordingly, representations of sending your deposit to the bank of your choice must be clarified. In many cases the deposit is sent to a clearing account where it is “collected” and then sent to the bank of your choice. However, there are costs associated with the clearing account that must be factored into any costs savings claimed. Further there is the question of whether the funds are co-mingled or set up under separated sub accounts and thereby insured. Finally, if your bank cannot readily accept a Check 21 file (and most can’t) then there must be some form of integration – usually these are minor adjustments to fields in the file. There is normally a cost associated with the integration which should be identified at the beginning.
Both companies and banks are confronted with the fact that paper checks are being replaced by a variety of electronic transactions. How much time and resources do you invest to convert paper checks to electronic transactions when customers are moving to the internet, debit cards, IVR systems, credit cards and mobile banking? ON the other hand a wrong decision will most likely mean that your company or bank will spend more than needed, be at a competitive disadvantage and be forced to use work arounds in the short term.
Here are some marketing statements along with simple questions to ask and the ideal answers:
___________________________________________________________________
Marketing Statement:
Our Check Scanning software works with ABC Hardware.
Question:
Is this the only hardware it will work with?
Ideal Answer:
No it will work with any major reputable brand of equipment.
Pitfalls:
This check scanning software is designed around one piece of equipment. This puts your company or bank at double risk. Not only are you investing your future in the Software Company but also in the hardware company. You may be subject to problems at both companies and there may be times when the companies no longer like each other. You will end up the victim.
____________________________________________________________________
Marketing Statement:
Our product can be deployed in a centralized or distributed work environment.
Question:
How is your Check Scanning Software installed in both the centralized and distributed environment?
Ideal Answer:
Our Check Scanning Software gives you options depending on your needs. It may be installed on your servers and distributed through your network OR installed on each client in a distributed fashion. In both cases the cost is the same and the services are the same. You will not be required to buy dedicated computes at each location. Your existing servers or clients can be used.
Pitfalls:
Some software requires that you purchase stand alone clients or servers because it is unstable in an environment with other software. Make sure the imaging software you use is reliable and stable in any environment. After all most businesses do not want to buy equipment to solve someone else’s software problems nor do you want a significant capital outlay up front.
____________________________________________________________________
Marketing Statement:
Our product reduces processing costs.
Question:
What are you counting as processing costs?
Ideal Answer:
We count cost savings as the savings in banking, personnel and overhead costs after deducting our software fees, equipment costs and clearing (bank) fees.
Pitfalls:
Many vendors count only soft savings of time and motion. They do not deduct their fees or allow for banking costs. Many vendors play on the belief by some that the customer has no banking costs associated with processing checks - but this is a myth. Either the bank is charging per check or the bank is holding funds (compensating balances) to offset costs with earned overnight interest. In either case some provision should be made for banking costs. The reason most vendors do not count banking fees is they want to be able to separate themselves from the bank thus making their costs seem less. However, since most customers are buying this technology to convert paper checks to electronic transactions banking fees will come into play.
____________________________________________________________________
Marketing Statement:
We send your deposits to the bank of your choice.
Question:
Do you send them direct or through a clearing account? Have the costs associated with a clearing account been identified in your pricing or are these costs separate? If you send them direct to our bank, do you also integrate your technology to our banks technology or do you leave that up to us?
Ideal Answer:
We can and do send either direct to your bank or to your bank through our clearing account. Costs associated with our clearing account have been identified and are included in the pricing quoted. If you send them direct to your bank we will handle the integration but since we do not know your bank we cannot price this before talking to your bank.
Pitfalls:
Sending deposits can mean many things in the RDC world. There are two basic file types being “sent to the bank” – Check 21 and ACH. Remote Deposit offered by most banks relies on the Check 21 file format. Remote Deposit offered by vendors may use either. They both have advantages and disadvantages. Further sending a file to a bank may or may not result in a deposit depending on whether or not the bank can take the file and use it. Accordingly, representations of sending your deposit to the bank of your choice must be clarified. In many cases the deposit is sent to a clearing account where it is “collected” and then sent to the bank of your choice. However, there are costs associated with the clearing account that must be factored into any costs savings claimed. Further there is the question of whether the funds are co-mingled or set up under separated sub accounts and thereby insured. Finally, if your bank cannot readily accept a Check 21 file (and most can’t) then there must be some form of integration – usually these are minor adjustments to fields in the file. There is normally a cost associated with the integration which should be identified at the beginning.
Wednesday, July 30, 2008
How will Large Retailers break off their love affair with paper Checks?
Since the days of the Sears catalog the paper check has been an important payment method for major retailers. Today handling paper makes it one of the more expensive methods of payments and due to market forces most major retailers have already invested heavily in credit and debit card payments. So…how do Large Retailers continue to accommodate their paper check customers while breaking off the love affair?
We believe check 21 and ACH combined has the ability to turn the love affair into a marriage! We do not believe this will be done through the point of sale systems. Changing or modifying point of sale systems is expensive and isn’t necessary with todays image based technology. Not only that but Wall St would not look favorably upon a CEO that wanted to make a significant Capital Investment in paper checks – even if it meant converting them to an electronic transaction. Paper checks are seen as an obsolete payment method (that’s why Wall St invested so heavily in Visa and MasterCard).
We see major national retailers going to a system that continues to verify checks at point of sale and then the checks take one of the following paths:
They are sent to the back office and, using technology such as ACHeck21, imaged and sent to the bank electronically. Reports are generated, financial systems updated, images archived and returns managed electronically. The system will settle checks as either ACH or Image files using intelligent routing to select the least expense option based on the rules. Paper checks will be destroyed at the store or off site.
Or……
Using technology such as ACHeck21 capture the routing, account number and amount from the point of sale system, settle checks to the bank electronically and then either image the checks in the back office or off site and allow the system (ACHeck21) match up the settlement file and images for use in collecting returns, answering customer questions and updating financial systems.
There are early case studies on the advantages of converting checks to electronic transactions. Most indicate handling costs savings of 0.10 to 0.50 cents per check!! This doesn’t include the organizational savings from business automation such as updating financial systems, archiving images, managing returns, research, reporting and disaster recovery to name a few. In fact processing paper checks electronically costs less than processing a debit transaction! If business automation savings are quantified and added to the savings in handling costs; the overall savings may actually exceed costs, thus giving an immediate ROI.
So, the moral of the story is Large Retailers may break off their affair with paper by starting and affair with either Back Office Conversion (BOC) or point of sale conversion and imaging.
We believe check 21 and ACH combined has the ability to turn the love affair into a marriage! We do not believe this will be done through the point of sale systems. Changing or modifying point of sale systems is expensive and isn’t necessary with todays image based technology. Not only that but Wall St would not look favorably upon a CEO that wanted to make a significant Capital Investment in paper checks – even if it meant converting them to an electronic transaction. Paper checks are seen as an obsolete payment method (that’s why Wall St invested so heavily in Visa and MasterCard).
We see major national retailers going to a system that continues to verify checks at point of sale and then the checks take one of the following paths:
They are sent to the back office and, using technology such as ACHeck21, imaged and sent to the bank electronically. Reports are generated, financial systems updated, images archived and returns managed electronically. The system will settle checks as either ACH or Image files using intelligent routing to select the least expense option based on the rules. Paper checks will be destroyed at the store or off site.
Or……
Using technology such as ACHeck21 capture the routing, account number and amount from the point of sale system, settle checks to the bank electronically and then either image the checks in the back office or off site and allow the system (ACHeck21) match up the settlement file and images for use in collecting returns, answering customer questions and updating financial systems.
There are early case studies on the advantages of converting checks to electronic transactions. Most indicate handling costs savings of 0.10 to 0.50 cents per check!! This doesn’t include the organizational savings from business automation such as updating financial systems, archiving images, managing returns, research, reporting and disaster recovery to name a few. In fact processing paper checks electronically costs less than processing a debit transaction! If business automation savings are quantified and added to the savings in handling costs; the overall savings may actually exceed costs, thus giving an immediate ROI.
So, the moral of the story is Large Retailers may break off their affair with paper by starting and affair with either Back Office Conversion (BOC) or point of sale conversion and imaging.
Tuesday, July 29, 2008
Where is the money in Checks?
It is often said where there is a need there is profit.
Most people see paper checks as obsolete and on the way out. In the mind of most businesses paper checks are a necessary evil that will soon be replaced by electronic transactions – mainly in the form of credit cards. However, to us that is what makes paper checks so interesting and … profitable. As time moves on, paper checks will convert to electronic transactions – this is an opportunity. In many cases paper checks will linger as paper and not convert – this is another opportunity. Metaphorically speaking, someone will have to “take the trash out”!
The Federal Reserve has announced that by 2010 they will no longer accept paper checks from financial institutions. If the Fed sticks to this pronouncement it will be a pivotal event. The strategic implications are staggering. Banks have already begun to buy technology and services to convert paper checks to images and to accept images from the Fed or other banks. As banks convert to the new image based technology it will be a small thing to simply exchange checks bank to bank – why bother with the Fed?? This presents an opportunity for companies that can offer banks flexible seamless software that will support the conversion of paper to electronic transactions at all points of contact with their customers – teller lines, ATMs, drive through, internet or external third party processors such as lockboxes.
As banks become more electronic, we expect that handling paper will become more costly. These costs will be passed on to customers. Customers will seek out technology to convert paper checks to electronic transactions to keep their banking costs low and to improve the efficiency of their internal business processes by incorportating business automation solutions. Business automation tools will likely include bookkeeping, archival, research and other solutions.
As paper checks become obsolete, there will be many great opportunities to fulfill the needs of businesses and banks – opportunities to serve and by providing a service to profit.
Most people see paper checks as obsolete and on the way out. In the mind of most businesses paper checks are a necessary evil that will soon be replaced by electronic transactions – mainly in the form of credit cards. However, to us that is what makes paper checks so interesting and … profitable. As time moves on, paper checks will convert to electronic transactions – this is an opportunity. In many cases paper checks will linger as paper and not convert – this is another opportunity. Metaphorically speaking, someone will have to “take the trash out”!
The Federal Reserve has announced that by 2010 they will no longer accept paper checks from financial institutions. If the Fed sticks to this pronouncement it will be a pivotal event. The strategic implications are staggering. Banks have already begun to buy technology and services to convert paper checks to images and to accept images from the Fed or other banks. As banks convert to the new image based technology it will be a small thing to simply exchange checks bank to bank – why bother with the Fed?? This presents an opportunity for companies that can offer banks flexible seamless software that will support the conversion of paper to electronic transactions at all points of contact with their customers – teller lines, ATMs, drive through, internet or external third party processors such as lockboxes.
As banks become more electronic, we expect that handling paper will become more costly. These costs will be passed on to customers. Customers will seek out technology to convert paper checks to electronic transactions to keep their banking costs low and to improve the efficiency of their internal business processes by incorportating business automation solutions. Business automation tools will likely include bookkeeping, archival, research and other solutions.
As paper checks become obsolete, there will be many great opportunities to fulfill the needs of businesses and banks – opportunities to serve and by providing a service to profit.
Monday, July 28, 2008
Taking your checks to the bank - 21st Century Style
Many Banks are missing a very important aspect of the conversion to Check21 technology and remote deposit. Common concerns are timing, integration with legacy technology, and improved efficiency. However, another real force to be taken advantage of is customer needs and market forces.
Bankers reading this may be thinking that customer needs and market forces are their primary concerns and probably believe that reading the rest of this article is a waste of time. They are wrong. The reason is perspective.
Banks are looking at the opportunities of Check 21 from their perspective. In response to the Check 21 Act many Banks have reacted in a defensive mode to protect market share while others have acted proactively to capture new deposit relationships. Regardless of approach the Bank must focus on timing, integration with legacy technology, and improved efficiency with the goal of keeping their customer base while acquiring new depositors and growing the balance sheet.
In the process of developing the banks response to Check 21, many of the bankers we talk to are evaluating their ’customer’s needs through a traditional banking service standards – that is - convenience, security, excellent service and financial soundness. On the other hand, customer’s, developing their response to Remote Deposit Capture, talk about getting their checks to the Bank with a laundry list of business needs that Check 21 and or ACH (Automated Clearing House) can solve but neither they nor the Bank think of these business solutions in terms of “Bank Services”. This disconnect between the bank’s perspective and that of their customers offers the forward thinking bank a real opportunity to capture market and coveted low costs deposits. To take advantage Banks must first truly understand the difference in their perspective and the needs of their customers.
While many Banks are struggling to maintain their margins and market share and cope with the changes in technology and credit markets, their business customers are being pursued by software providers offering sound business solutions that far surpass typical “remote deposit”.
Examples include:
• Ability to allow multiple locations to be managed from a central office,
• CAR/LAR read and verification,
• Interaction with Accounting systems to update A/R;
• Ability to make deposits to multiple Financial Institutions or multiple Financial Institution accounts;
• Systems that can be used with various types and brands of equipment. Currently equipment pricing is falling rapidly with two sided check imagers selling in the $300 range;
• Searchable archives useable for customer service and data mining;
• Distributed work flow that allows any of the functions listed here to be assigned to different people in different locations – while one person is imaging, another is verifying and yet another may be reviewing and approving (or disapproving) deposits.
• Ability to control duplicates and set limits on check amount and velocity;
• Ability to control access to each part of the system while allowing anyone in the organization to search and view checks.
• Integration with all forms of ACH as well as Check 21.
• Intelligent routing which allows the system to evaluate each check and settle the check either as an ACH item or Check 21 image depending on the best solution for the business.
• Integration between the customer’s internet, Interactive voice response, point of sale systems, back office systems, internal or external lockbox or any other process that converts checks. It should not matter whether these functions are in the same building or across the country.
• Ability to handle single checks, checks and stubs, multiple checks with single stub, multiple stubs with single checks, white paper or virtual stubs.
• Virtual endorsement
Where does this leave the Bank? Obviously the marketplace will prevail. Solutions that are more than remote deposit are permeating the marketplace and fulfilling their promise of increased efficiency and effectiveness. Many of these are financial institution independent – severing any tether the customers may have with a specific Financial Institution. Other vendors bring their own Financial Institution solution. Some solutions offer the customer the choice of going to their present bank or using a vendor owned clearing account. Either choice has ramifications for the Banker. If the customer uses the vendor’s clearing account their present Bank loses low cost funds for a day or two, loses any fee income and in turn receives an ACH deposit every day. If they send the file to the customer’s present bank, the bank must be able to easily accept the file.
With the rate at which the market for check imaging is growing it won't take long before Banks find themselves with remote deposit solutions no one wants or simply can’t use! Or, Banks may be forced to continually upgrade, at great expense, to simply keep the customers they have. Many are doing that now, and the result is degradation of Bank efficiency ratios with little short term or long term benefits to show for it. There is an option. Financial Institutions can design their systems to easily accept an x9 or ACH file from various vendors and insist the technology they acquire is an open platform that can send files to or from (including returned check files) multiple vendors. This approach will allow the market to create the technology while the Financial Institution does what the Financial Institution is best at – managing and moving money.
Opening their electronic doors for some banks may be a hard sell primarily due to the fact many Banks are waiting or moving slow and may find they are forced to make bad decisions at the last minute. Others, are contractually trapped in legacy systems that are functionally obsolete.
The Financial Institutions that lay the proper strategic groundwork now will survive and prosper over the next 10 years. To lay the proper groundwork, they should insist on core processing technology that: accepts either an ACH file or Check21 (x9.37/x9.187) file; automatically processes the files through the fed or image exchange with little or no human intervention and updates the Financial Institutions general ledger; has the capability to notify customers and vendors automatically when a return file is received and send back returns to the customer/vendor's system in the same formats; work with many vendors and many types of equipment (this will require fraud detection and IQA sub systems among other things); automatically monitors dollar amounts and quantity of transactions and sets off alarms when either exceed agreed amounts. In addition the Financial Institution should partner with a vendor that has at a minimum the business solutions listed above. By doing these and other similar things the Financial Institutions will have business solutions for their customers as well as Banking solutions! In the process the Bank is creating a sales force of vendors already in the marketplace. The Bank will be able to go anywhere to accept deposits and will always be able to support a business solution whether it's the Banks or the customers. In the end low costs deposits and fee income make the Bank profitable. To grow both of these a Bank must open its electronic doors to new customers.
Financial Institutions cannot afford to miss this very important aspect of the conversion to Check21 technology. Timing, legacy technology, improved efficiency are very important but strategic positioning is just as important – Are your electronic doors open for business?
Bankers reading this may be thinking that customer needs and market forces are their primary concerns and probably believe that reading the rest of this article is a waste of time. They are wrong. The reason is perspective.
Banks are looking at the opportunities of Check 21 from their perspective. In response to the Check 21 Act many Banks have reacted in a defensive mode to protect market share while others have acted proactively to capture new deposit relationships. Regardless of approach the Bank must focus on timing, integration with legacy technology, and improved efficiency with the goal of keeping their customer base while acquiring new depositors and growing the balance sheet.
In the process of developing the banks response to Check 21, many of the bankers we talk to are evaluating their ’customer’s needs through a traditional banking service standards – that is - convenience, security, excellent service and financial soundness. On the other hand, customer’s, developing their response to Remote Deposit Capture, talk about getting their checks to the Bank with a laundry list of business needs that Check 21 and or ACH (Automated Clearing House) can solve but neither they nor the Bank think of these business solutions in terms of “Bank Services”. This disconnect between the bank’s perspective and that of their customers offers the forward thinking bank a real opportunity to capture market and coveted low costs deposits. To take advantage Banks must first truly understand the difference in their perspective and the needs of their customers.
While many Banks are struggling to maintain their margins and market share and cope with the changes in technology and credit markets, their business customers are being pursued by software providers offering sound business solutions that far surpass typical “remote deposit”.
Examples include:
• Ability to allow multiple locations to be managed from a central office,
• CAR/LAR read and verification,
• Interaction with Accounting systems to update A/R;
• Ability to make deposits to multiple Financial Institutions or multiple Financial Institution accounts;
• Systems that can be used with various types and brands of equipment. Currently equipment pricing is falling rapidly with two sided check imagers selling in the $300 range;
• Searchable archives useable for customer service and data mining;
• Distributed work flow that allows any of the functions listed here to be assigned to different people in different locations – while one person is imaging, another is verifying and yet another may be reviewing and approving (or disapproving) deposits.
• Ability to control duplicates and set limits on check amount and velocity;
• Ability to control access to each part of the system while allowing anyone in the organization to search and view checks.
• Integration with all forms of ACH as well as Check 21.
• Intelligent routing which allows the system to evaluate each check and settle the check either as an ACH item or Check 21 image depending on the best solution for the business.
• Integration between the customer’s internet, Interactive voice response, point of sale systems, back office systems, internal or external lockbox or any other process that converts checks. It should not matter whether these functions are in the same building or across the country.
• Ability to handle single checks, checks and stubs, multiple checks with single stub, multiple stubs with single checks, white paper or virtual stubs.
• Virtual endorsement
Where does this leave the Bank? Obviously the marketplace will prevail. Solutions that are more than remote deposit are permeating the marketplace and fulfilling their promise of increased efficiency and effectiveness. Many of these are financial institution independent – severing any tether the customers may have with a specific Financial Institution. Other vendors bring their own Financial Institution solution. Some solutions offer the customer the choice of going to their present bank or using a vendor owned clearing account. Either choice has ramifications for the Banker. If the customer uses the vendor’s clearing account their present Bank loses low cost funds for a day or two, loses any fee income and in turn receives an ACH deposit every day. If they send the file to the customer’s present bank, the bank must be able to easily accept the file.
With the rate at which the market for check imaging is growing it won't take long before Banks find themselves with remote deposit solutions no one wants or simply can’t use! Or, Banks may be forced to continually upgrade, at great expense, to simply keep the customers they have. Many are doing that now, and the result is degradation of Bank efficiency ratios with little short term or long term benefits to show for it. There is an option. Financial Institutions can design their systems to easily accept an x9 or ACH file from various vendors and insist the technology they acquire is an open platform that can send files to or from (including returned check files) multiple vendors. This approach will allow the market to create the technology while the Financial Institution does what the Financial Institution is best at – managing and moving money.
Opening their electronic doors for some banks may be a hard sell primarily due to the fact many Banks are waiting or moving slow and may find they are forced to make bad decisions at the last minute. Others, are contractually trapped in legacy systems that are functionally obsolete.
The Financial Institutions that lay the proper strategic groundwork now will survive and prosper over the next 10 years. To lay the proper groundwork, they should insist on core processing technology that: accepts either an ACH file or Check21 (x9.37/x9.187) file; automatically processes the files through the fed or image exchange with little or no human intervention and updates the Financial Institutions general ledger; has the capability to notify customers and vendors automatically when a return file is received and send back returns to the customer/vendor's system in the same formats; work with many vendors and many types of equipment (this will require fraud detection and IQA sub systems among other things); automatically monitors dollar amounts and quantity of transactions and sets off alarms when either exceed agreed amounts. In addition the Financial Institution should partner with a vendor that has at a minimum the business solutions listed above. By doing these and other similar things the Financial Institutions will have business solutions for their customers as well as Banking solutions! In the process the Bank is creating a sales force of vendors already in the marketplace. The Bank will be able to go anywhere to accept deposits and will always be able to support a business solution whether it's the Banks or the customers. In the end low costs deposits and fee income make the Bank profitable. To grow both of these a Bank must open its electronic doors to new customers.
Financial Institutions cannot afford to miss this very important aspect of the conversion to Check21 technology. Timing, legacy technology, improved efficiency are very important but strategic positioning is just as important – Are your electronic doors open for business?
Subscribe to:
Posts (Atom)
