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.