Remote Deposit Capture in an Enterprise Payments World
After months of corporate customers preparing for Check 21, the key variables of the RDC business case begins to emerge clearly (see figure 1). Cash-heavy organizations have local dependencies, and so often have a weaker case for RDC.
Looking at the research suggests these characteristics would lead to a high-value business case for RDC:
This study focused on the value to be derived in the early part of the RDC process. In the case of some customers of banks, this represents just the low hanging fruit. The largest value is often derived after the initial RDC enablement in subsequent projects when the customer begins to reengineer payment processes end-to-end.
Each company’s deposit-related operations were mapped to a standard workflow chart so a norm could be created for comparison. Common activities were used to compare the business’s current costs in the non-RDC environment to the likely costs in an RDC-enabled operation.
An image capture environment was assumed, and mapped their current operations to future RDC enabled operations. Here, there were two alternatives. Under the first alternative, called stand-alone, the only improvement was use of the RDC solution.
The second alternative, called integrated, was for companies with an automated receivables application, to which the RDC solution would be directly interfaced, giving the company greater potential for reducing or eliminating work.
In the sample analysis in figure 2, it is demonstrated that RDC would permit this particular survey respondent to reduce its work effort by 38 per cent, with most of the savings coming from activities associated with updating, sorting, and day two.
The improvements into financial benefits translated as follows: time saved at $171,776, bank/carrier fee reduction of $10,560, use of fund improvement $11,130 (average daily holdover invested at long-term treasury bond rate of 3.5 per cent), additional costs (equipment, training, project roll-out, telecom, software) at $5,000 – for a net yearly financial benefit of $188,466.
While financial benefits powerfully influence a company’s RDC decision, they are not the only factor. Research revealed that companies perceive the value of specific benefits quite differently, depending on a variety of strategic considerations. Respondents were asked to rate the relative importance of five potential RDC benefits as shown in figure 3. The results demonstrate that the simplification and streamlining of cash management can be a business value that is more important to corporate treasurers than the sheer dollars saved in execution of a process. Another example might be that the time savings provided to a business enabled that business to focus resources on more value added tasks, therefore the overall value delivered to the company was much greater than the cost savings from RDC.
Surveys were conducted by industry in order to generalize on the relative attractiveness of RDC to each industry (see figure 3). Almost 90 per cent of the insurance industry respondents found value in RDC, an intuitive finding if you consider the characteristics of the typical insurance company: large number of paper payments, multiple locations, non-local payees, large transaction size, and minimal cash.
At the lower end of the scale were religious organizations – again an intuitive finding from the standpoint that churches tend to collect more cash, in smaller amounts, from mainly local sources and, not surprisingly, do not find many fraudulent checks in the weekly collection basket.
Interestingly, retail companies came in at the lower end of the scale. Embedded in that 65 per cent are retail companies, the widest of extremes: retailers that did not have compelling business cases due to their high priced inventory (jewelry, appliances, automotive) where payments were more than 60 per cent electronic already and others with more attractive business cases due to high check ratios and local, well-known customer base (grocery, pharmacy, etc.).
For one retailer, corporate capture was at an interesting tipping point. They had very few checks, but they were often very large and non-local. Therefore if the cost of the solution was between certain parameters, the business case worked. If a solution was not attainable within those parameters, there was not a business case.
One corporate treasurer of a publishing company for dozens of small town newspapers said, “Because of our distribution, I have to use 12 local banks in 12 different locations. To each of them, we look like and get treated as a much smaller account. If I can consolidate my deposits through remote capture, we will get the attention our size and scope deserve.”
Figure 4 illustrates the RDC business case for a large retailer – one of the largest business cases of our survey. This retailer, in the consumer electronics business, has about 1,000 locations over half of the US and its payments are mainly checks and cards with higher dollar values. This retailer, we found, could save approximately $528,000 annually by capturing images remotely. Because many of the locations are not near banks and the dollar value of the daily activity is high, secure transportation must be hired to pick-up deposits and drop them off at bank processing sites multiple times each day. In this case, the transportation savings was a major value driver as well as efficiency impact.
This conclusion was reached by subtracting the new costs (of image capture equipment and deposit fees) from current costs (about $1m, mainly in labor and transportation).
Underlying assumptions included the following:
At the opposite end of the scale was a company in the insurance business – an industry that on the whole is an excellent RDC candidate. Looking deeper, however, it emerged that this company maintains, in addition to their large in-house lockbox operation, an extraordinarily large network of storefronts for taking consumer payments, and that about 30 per cent of storefront payments are made in cash. The business case was undercut by the need to equip so many small sites, the requirement to maintain transportation and local bank accounts to handle the large cash supplies.
As a result, analysis showed that RDC would actually increase the company’s costs by about $609,000 over the first three years (see Figure 5). Once again, a reasonable conclusion (that RDC is profitable for insurance companies) gave way to a different conclusion on deeper analysis at the specific company level.
It is worth noting other benefits that are difficult to measure.
From a cash manager’s standpoint: RDC typically allows consolidated deposits that in turn yield large balances. If the resulting larger relationship shifts from fee-based to analysis, the company would realize lower fees. They would also be likely to earn access to additional services such as image returns, controlled disbursements, positive pay, and ARP.
Many respondents, as quoted above, were pleased to note that RDC would earn them a better overall banking relationship. The consolidated deposits were enough to shift them from small business to middle market classification with the attendant relationship benefits, including an improved credit rating.
Centralization is a natural by-product of RDC, and the normal centralization benefits accrue to RDC companies: elimination of redundant, dispersed operations, and a single view of their balances and deposits.
Besides the time savings used to calculate the financial benefits, there are other time saving benefits available to RDC companies. They can be more efficient in the remaining tasks, they can reduce their exception and error rates when they reduce data entry and re-keying, in turn reducing the time expended on resolving exceptions and errors. Eliminating trips to bank branches enables staff to concentrate on other time-sensitive tasks of reconcilement, adjustments, and customer service.
The customer service benefits were critical to a number of companies. For example, having an image available eliminated searching for filed copies, making copies for customers, and mailing or faxing copies. Along with the better service is the corresponding ability to serve more customers with no increase in staff.
To be balanced, customers who did not currently have RDC were also asked what their concerns might be around implementing an RDC solution. While respondents rated their RDC concerns (see figure 6) much lower than they rated the perceived benefits, a review of their concerns is instructive for companies considering the RDC business case.
The training category rated highest, with concerns encompassing ease of use, proper check handling, device servicing and customer education. In the risk-sharing category were concerns about image quality, indemnity, warranties, and credit checks for financial liability for deposit errors. In the category of security, they expressed concerns about data security and fraud. As the overall industry attention around fraud prevention and protection of customer data continues to increase, it is expected that this will become a more realistic concern that may increase requirements for RDC solution functionality. Lastly, despite concerns about new costs, it was no surprise that respondents largely expected a short payback period.
The overwhelming conclusion of our survey is two-fold:
For each company, the challenge is to understand the detailed dynamics of its own payments business and, more challenging, to predict the ongoing behavior of its customers. They must have a perspective of their business profile and value expectations in order to evaluate the RDC alternatives from its banks or other service providers. It means keeping pace with technology advances so that the company can enjoy the cost savings and growth opportunities that the payment industry transformation is beginning to deliver. It means adopting the payments solutions that are best fitted for their unique business needs, rather than assume that one size fits all.