Advice On Dealing With Disappearing 'Paper World'
The recent announcement that another check printer would be merging-in this case, Liberty Enterprises with Harland-should come as no surprise, according to one analyst.
In this case, it's companies seeing the handwriting on the signature line. WesCorp is projecting that by 2010 checks will account for no more than 25% of noncash payments, and that by that same year the check payment system will be based primarily on the exchange of checks.
Moreover, the check processing world is one that remains "marred by fixed costs," according to Anthony Kitt, senior VP-payments with WesCorp. Kitt noted that an estimated $900 million to $2.1 billion in infrastructure cost must be removed just to maintain current check unit costs. The challenge is magnified, he added, by the fact it is anticipated average unit cost increase in the expense base from 2002 to 2007 will be an estimated 22%.
Banks already recognize the reality he said, noting nearly every big bank has bought into central repositories for check images that eliminate the need for individual image archives,
In remarks before the California league's Big Valley Conference, Teresa Ward, VP-Item Processing Services with WesCorp, agreed with Kitt that credit unions and members continue to exist in "the paper world." But the enactment of Check 21 last year is not going to eventually bring about the end of that world, she said. What Check 21 has done, she said, is bring about "distributed capture." That is, through an image exchange network or a direct connection, the image (or a substitute check) is available everywhere.
The long-term solution is to expand the capture of the image/data at every teller workstation, and more favorable pricing for image exchange. Kitt said a credit union should expect to pay approximately $3,000 for such a system.
As the float goes out of the system, Ward said most credit unions should see a reduction in fraud as there is much earlier detection of scam attempts. The flip side, however, is that in electronic images, many of the security procedures in place cannot be seen.
Ward said WesCorp sees three options when it comes to distributed capture. The trio are:
* Higher capital investment, with teller station deployment and multiple devices per credit union branch.
* Medium capital investment, with branch backoffice batch processing and one device per credit union branch.
* Lower capital investment, with a "hub and spoke" model in which several smaller CUs share a device.
Credit unions need to take a number of issues into consideration prior to entering an image capture environment. Among those issues, according to Ward:
* Initially, costs may go up until large players are able to exchange images (meaning the CU must still create substitute checks).
* Fed fees continue to climb for paper processing. "Even if distributed capture technology is not adopted, the cost to process paper will increase," said Ward.
* Early adoption allows earliest advantage of savings as they can be realized. The timeframe for implementation, said Ward, will increase when demand is high.
* CU assumes responsibility of reconverting bank.
* Disaster recovery must be in place, with alternate processing capabilities established if equipment fails.
* With check retention, there remain no industry standards, and credit unions must establish an internal policy, said Ward.
"The fastest growing payments method today is plastic," pointed out Kitt, citing not just banks making for a saturated market, but retailers, delivery system providers and monoline specialists.
Within plastic, debit card growth is outpacing all other use of cards, with credit union members even more likely than the general population to use a debit card. "The larger the credit union, the higher the credit card penetration of members," said Kitt.
But Kitt also emphasized another point he said is just as important as recognizing those trend lines: compliance. In the wake of Sept. 11, the government has "gotten serious" with Bank Secrecy Act requirements, as well as rules related to the Office of Foreign Asset Control (OFAC).
You will need a dedicated compliance officer. You must educate and train your employees," said Kitt. "It's not a difficult thing to do, but you must." He noted that while WesCorp may be in compliance, "you are not exempt just because we comply," he reminded.
Beta Vs. VHS In Check 21
MONTEREY, Calif.-Teresa Ward noted that at WesCorp Check 21 is often thought of as the Wild West because of the lack of standardization in equipment and the data stream produced. Ward said the current state is much like the Beta vs. VHS rivalry that emerged with videotape, and that the industry is awaiting a shakeout. Also lacking, noted one California CU CEO, is a piece of middleware between the teller station and the processor that would allow for check truncation at the teller station. "My guess is (that technology is) just a year away, if it's that long," said WesCorp's Anthony Kitt.