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.
Wednesday, July 30, 2008
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?
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