Remote Deposit Capture: Revolutionizing the Check
Still in its infancy, remote deposit capture (RDC) often has different names depending on how the service is applied within a particular environment. These names include corporate capture, merchant capture, image deposits and image cash letters. In general, we see the term RDC increasingly used as the catchphrase for a family of related products and services. Each of these service family members is related in one common way: the service allows for checks to be truncated and cleared electronically.
Recent legislation in the US commonly referred to as Check 21 makes this entire process possible. Passed in October 2003 and implemented in October 2004, this legislation allows banks to clear checks based upon images of the original items; instead of having to transport the original check all the way back to the paying bank for clearing. The benefits of RDC can be substantial: convenience, reduced transportation risk and cost, better availability, processing efficiencies and the ability to consolidate banking relationships.
RDC, in its most simple terms, is a service that allows a user to scan checks and transmit the scanned images and/or ACH data to a bank for posting and clearing. The basic requirements for a RDC service currently include a PC, an Internet connection, a check scanner and a service provider, such as a company’s current bank. Checks received at the corporate or bank location can be scanned to create a digital deposit. This digital deposit is then transmitted (usually over an encrypted internet connection) to the RDC bank service provider who then accepts the deposit, posts the deposit to the company account and assigns availability based on the company’s availability schedule.
The AFP Conference in San Antonio, Texas, last week is a good indicator of the current interest in RDC as 30 per cent of exhibitors were involved in the RDC industry and over 90 per cent of the banks exhibiting had RDC solutions to showcase.
The RDC Process
Depending upon functionality and degree of incorporation into the corporate or bank operations, the RDC process can range from extremely basic to becoming a part of the automated receivables processing platform. In its most basic application, here is an example from a corporate perspective:
Behind the scenes, the bank has a few different options on how to clear the items. Checks converted to ACH transactions are processed electronically. For the non-ACH converted items, the process can be a bit more complex. Unlike what most of the press has scared the public into believing (that checks now clear almost immediately), as of September 2005, less than 2 per cent of checks are cleared as images. How then does the bank clear items captured via RDC? By re-printing the images and clearing those re-printed paper documents. These re-printed checks are called image replacement documents (IRDs).
While printing IRDs is not the ideal solution for any of the parties involved, until image clearing is widely adopted, this is a bank’s only option. The Check 21 law only mandates that a bank must accept an IRD in the clearing process if they are presented with one. The Check 21 law does not mandate that banks take images of checks, clear images or return checks as images, but it does pave the way for innovation in the archaic way the US used to (and for the most part, still does at this point in time) process and clear checks.
Corporations and banks that utilize a RDC service will likely realize a host of benefits. Now that full truncation of checks is possible, substantial savings can be made from reductions in transportation expenses. ‘Reduction’ because there may be items which might be unsuitable and unable to be processed via RDC, and therefore must still be deposited in paper form at a bank. The vast majority of items (99.5 per cent+) will be able to be captured. Assuming your corporation or bank previously had daily couriers depositing items, RDC allows you to reduce your transportation needs substantially. Your corporation may now choose to utilize that courier only once per week for the (very) few items which need to go to the bank in paper form
RDC enables users to capture deposits in their office/processing center, branch, etc and can eliminate the need for the checks to be transported to the bank. This reduction of the transportation time from the total processing lifecycle of a check provides a longer time for the corporation to process the checks. Often, this additional processing time allows the corporation to deposit more items on any given day than it otherwise would.
In addition, most banks offering RDC have extended the cut-off times for deposit. For example, one bank offering the service allows RDC deposits to be made as late as 8pm (EST) while the deadline for regular paper deposits is 4pm. The combination of more processing time for the corporation and later deposit deadlines results in accelerated clearing times.
Closely related to accelerated clearings, improved availability results from the ability to now make deposits earlier in the day. Most large banks offer availability schedules that vary depending upon time of deposit. The earlier a corporation can make the deposit at the bank, the better an availability schedule can be assigned to that deposit because the bank now has more time to process and clear the items. As more banks begin to use image exchange for clearing, as well as other Check 21 enabled products from the Federal Reserve and other clearing networks, clearing capabilities and success rates will improve.
RDC can enable consolidation of banking relationships. No longer does a corporation necessarily need to have the local bank around the corner to make check deposits. With a RDC solution, there are no longer geographic ‘footprints’ for depository relationships. The combination of business portability and competition between banks for corporate deposit business will prove a windfall for corporations. Clearly, the larger the corporation and the more volumes of items to deposit, the greater the potential opportunity. Likely benefits of banking relationship consolidation include:
It is important to note that not all RDC solutions are the same, nor should they be. Functionality can differ substantially depending upon the provider and their capabilities. Similarly, requirements can be quite different from one user to another. Requirements of any RDC system should therefore be closely matched to system functionality. This relationship generally is reflected in the correlation between the cost of the service, and the value that service provides to the user.
A basic service is a stand-alone one that simply replaces the user’s trip to a bank. Check amounts must be keyed and no additional data or functions are part of the service. A basic service provides little or no automation of the deposit and remittance process. This type of a service is well suited for small businesses that receive only a few checks per day.
An optimal RDC service is one that employs additional functionality such as automated image quality analysis, intelligent character recognition, auto-balancing, data capture, business-rules driven system feeds and intelligent clearing. An optimal service is one that provides substantial deposit and remittance processing automation, and can be incorporated into a bank or corporation’s daily operations. This type of a service is well suited for banks and corporations that process hundreds of items per day and have significant functionality requirements.
Checks are, and will remain, a very important part of cash management for US banks and corporations. While the use of checks in the US is declining overall, the majority of payments the average corporation receives are by check. Some banks have even seen the average number of checks written and deposited by corporations increase in recent years, indicating the decline in checks is primarily a consumer-based phenomenon. Either way, Check 21 created a rare opportunity where both the providers and users of the service stand to benefit.