Market Appeal Accelerates as Remote Deposit Solutions Mature
In 2004, the US Federal Government enacted the Check Clearing for the 21st Century Act. This legislation, commonly referred to as Check 21, allows US banks to process cheques using digital images rather than paper. Check 21 served as a catalyst for new cheque processing technologies and new business opportunities. Remote deposit, for instance, soon emerged allowing businesses to use a small cheque scanner to scan incoming cheques and transmit deposits electronically to their bank – all from the convenience of their own office. From the beginning, remote deposit was considered a cheque processing innovation, even revolutionary. But today it is considered a must-have technology for financial institutions to remain competitive and for businesses to take full advantage of the industry’s shift to electronic payments.
Supporting this innovative concept has been the increasing availability of small scale, cost-effective cheque scanners. Previously, large cheque reader/sorter/encoders were reserved for high volume processing facilities. Now, affordable tabletop cheque scanners allow small- and medium-sized businesses to take advantage of cheque imaging technology. They provide high quality image capture capabilities to produce files that meet all the requirements for Check 21 electronic processing.
There are dozens of cheque scanners on the market with more being introduced all the time, especially for distributed capture applications like remote deposit. From cheques to coupons to full-page invoices, today’s wide range of scanners meet a diverse set of document, throughput and price requirements.
The benefits of remote deposit to businesses are compelling: eliminating daily trips to the bank, faster funds availability, consolidating deposits, later deposit cut-off times, reduced errors and deposit prep time, identifying fraud sooner, maximising staff productivity and doing away with the tedious task of photocopying cheques. The benefits to banks are also undeniable: being able to compete outside traditional geographical boundaries, securing new deposit business, reducing branch teller traffic and perhaps most importantly, serving customers better.
In the 2007 American Bankers Association (ABA) Banking Journal community bank competitiveness survey, remote deposit was identified as the number one technology spending priority. It even surpassed Internet banking and core systems in the ranking. And just one year later, according to the 2008 survey, twice as many banks offer remote deposit (37.5%) compared to the previous year (16.3%). Yet it also reports that less than 5% of these banks’ corporate customers are using remote deposit. This indicates that while remote deposit has enjoyed rapid adoption by banks its penetration with end users is slower than expected. A contributing factor might be the design of the product itself.
First-to-market solutions were typically thick client solutions that require the end user to install software on their PC. The user is expected to have some level of technical expertise to prepare and transfer deposit files to the bank. For financial institutions rolling out this solution, it means distributing installation CDs, properly training users and providing ongoing technical support. For the most part, the financial industry was not well equipped to deploy and support this solution approach. Early adopters tended to be the larger banks, or at least those with the infrastructure and resources to implement it.
This drove the appeal of a thin client implementation. These solutions are not installed at the local desktop, but are web-based solutions whose core processing activities are performed elsewhere on a remote server. The downside is that they require Internet connectivity in order to function, which can limit a user’s throughput and reduce their productivity.
Smart client applications, on the other hand, offer the best of both the thick and thin models without the inherent disadvantages. A smart client architecture eliminates many of the implementation barriers inherent with previous solutions. They are available via a web browser, rather than being installed locally as with thick clients, allowing for fast deployment, easy start-up and automatic updates. And unlike thin clients, key functions are performed locally and Internet connectivity is required only when completing certain tasks.
And while the architecture has evolved, so has the feature set. Unlike many early solutions that simply automated the deposit process, the latest enterprise class solutions are very robust and include an advanced set of remittance processing features, forms and full-page document processing, tight integration with accounting systems and multiple clearing methods. Not surprisingly, a portion of today’s remote deposit deployments are actually replacements for early solutions that had limited market viability. An increasingly sophisticated business community quickly outgrew the limited features and the banking community discovered that their solution could not meet the needs of their diverse client base.
When a smart client remote deposit solution is coupled with an online payment gateway, the result is a turnkey payment processing solution that does everything from capturing the image of the cheque, to clearing the cheque electronically, to depositing funds in the bank. A payment gateway can receive raw cheque images from a remote deposit application, create ACH transaction or Check 21 image files and immediately process them for clearing. The gateway manages the relationships with the required financial institution(s) and handles the entire clearing process on behalf of the end user. Additional capabilities of some payment gateways include the ability to consolidate deposits from multiple locations, to manage and resubmit return items, and to accept transactions from other gateways.
A remote deposit solution that is integrated with a payment gateway benefits businesses because they can begin using remote deposit right away. Just access the application from the gateway and begin making deposits. Banks benefit by including a third-party payment gateway as part of their remote deposit offering because it eliminates significant operational burdens for them. They don’t have to build and administer an in-house solution to receive, route and manage deposit files.
Aite Group, an independent research firm focused on the financial services industry, reports that 100% of the top 20 and most of the top 100 US banks have deployed remote deposit, but that only 45% of the smaller banks have done so. Now more than ever the smaller community banks are seeking robust solutions that are easy to deploy and have a low cost of entry. A turnkey smart client solution that links directly to a payment gateway is the perfect solution to meet this market demand and position remote deposit for mainstream adoption.