Remote Deposit Capture and the Check Processing Revolution

One transformational product enabled by Check 21, remote deposit capture, is enjoying an explosion of popularity – with volumes growing dramatically. The reason for this growth is clear: it delivers myriad benefits, not least by offering businesses the opportunity to streamline work flow with electronic information.

How Remote Deposit Capture Works

Remote deposit capture is an electronic transaction between a commercial depositor and a bank. The commercial client uses resources and equipment at its facility to create an electronic file of images for deposit – removing the need to ever set foot in a bank branch.

The basic requirements for a remote deposit capture service are straightforward. All a company needs is a personal computer, check capture software, a check scanner and a service provider, which is usually the company’s bank. Checks received at the corporate or bank location can be scanned to create a digital image. That image can then be transmitted (usually over an encrypted Internet connection) to the remote deposit capture bank service provider, which then accepts the deposit, posts it to the company’s account and assigns funds availability based on a pre-set schedule.

Remote deposit capture offers a number of benefits:

• Elimination of desk float, mail float and transportation costs
• Extended processing hours
• More efficient work flows
• Faster notification of returns and fraudulent items
• Reduced risk and insurance expense
• Consolidation of banking arrangements

In addition, remote deposit capture offers a range of sophisticated features and functions that enhance the safety and security of the process, ensure high image quality and provide powerful information interfaces and networking capabilities.

Perhaps one of the most significant benefits of remote deposit capture is the potential it creates for a new way of doing business, and forward thinking corporations and banks have already begun to exploit this new business advantage.

For example, remote deposit capture can facilitate consolidation of banking relationships. To make check deposits, a corporation no longer needs a local bank. And there are no longer geographic footprints for depository relationships.

Competition among banks for corporate deposit business has already led to other benefits, such as expanded credit and cash management relationships and preferred funds availability. In addition, companies are enjoying a significant reduction in banking relationship management costs. Account analysis, reconciliation and management can be a costly and time-consuming process, and reducing the number of banking relationships can lower those costs considerably.

Solutions Vary Widely

Unsurprisingly, not all remote deposit capture solutions are the same. Functionality can differ substantially depending upon the provider and its capabilities. An optimal RDC service is one that employs enhanced functionality, such as automated image quality analysis, intelligent character recognition, auto-balancing, data capture, rejection of non-US dollar checks, intelligent clearing and system feeds driven by business rules.

Some providers deliver additional services, such as:

• Two-sided image scanning: this captures the front and back of a check at the same time, eliminating the need to scan each side separately.
• Automatic account balancing: optical character recognition reads both character amount recognition (CAR) and legal amount recognition (LAR) from checks and validated deposit balances.
• Duplicate presentment logic: special logic is built in to point-of-capture and check-clearing technology that virtually eliminates the possibility of duplicate presentment.
• Information extracts to automate accounts receivable posting.

There are two different approaches that banks may choose to develop their RDC solution: a distributed approach and a centralized approach.

In a distributed environment, the bank’s client is responsible for image capture and balancing, check truncation and safe keeping of the original checks. The client is also responsible for the legal warranty against double presentment (when both image and original are inadvertently processed) and for any returns of the original items.

The benefits of a distributed model include faster processing to a clearing bank (improved funds availability) and reduced transportation costs and risks. In addition, return-item notification on non-sufficient funds or fraudulent checks is faster.

In a centralized model, the client is responsible for the forward clearing of their USD checks to their depository bank’s regional processing center. The bank handles the image capture and subsequent movement of the images to the clearing bank.

The depository bank is responsible for truncating the checks and providing warranty against a duplicate presentment. The client incurs transportation costs and bears the transportation risk. Funds availability is better than traditional paper clearing but generally slower than it is with a distributed process.

Risks and Remote Deposit Capture

There are some risks associated with RDC. Financial institutions as well as corporations should be aware that they must:

• Understand truncation risk – under this new legislation, any entity that truncates a check becomes fully responsible and financially liable for the accuracy and quality of the information they enter for processing.
• Warrant against double presentment – to guard against this, each bank or service provider will recommend a period for secure storage after the deposit. After the recommended storage period expires, items may be securely disposed of.
• Be liable for reconverted items (items that are both scanned and then printed as an image replacement document – IRD).
• Ensure image quality – items can be returned due to poor image quality, causing rework and delay in deposit posting.
• Manage fraud in this new digital environment-paying banks, for example, should have both traditional security features and digital verification tools.

Long-term Changes as a Result of Remote Deposit Capture

While paper checks are likely to remain an important part of cash management for US banks and corporations for years to come, the use of paper checks is declining. What once was a manual process from front to back is now being transformed by technology together with an almost total process redesign. RDC services are altering the payments landscape and presenting new opportunities to automate and enhance the way US companies and banks do business together.