First Tennessee National Corp. has begun selling desktop check scanners to corporate customers so that they can capture the images of the checks they receive at personal computers and transmit them to the bank without having to visit a branch.
The service, which was announced last week, not only promises to give corporate customers access to these deposits two days sooner, but also puts First Tennessee in the vanguard. Several larger banks are piloting similar programs.
The Memphis company's First Tennessee Bank subsidiary said its First Deposit Plus service is an example of how image technology is likely to transform many banking practices that have remained unchanged for decades, including the timeworn custom of a merchant standing in a teller line on a weekday afternoon with a large zipper pouch of checks to deposit (or the more modern equivalent, the ferrying of checks by armored car). Both lockbox customers and smaller merchants are being invited to use the service, the bank said.
"While we expect to have more business from our lockbox customers, we are offering this to anybody," said Taylor J. Vaughan, the senior vice president of cash management services at First Tennessee Bank. The target customer is a small or midsize business that deposits "hundreds of items a day, rather than thousands - or even dozens of items."
To use the service, corporate customers buy or lease check-scanning hardware that plugs into the USB port of a computer. According to the bank it takes five minutes to set up the software, and the customer can store the check images and make them available to designated employees.
Though the bank was expecting to attract corporate customers that deposit a relatively small number of high-value checks, the service seems to have had wider appeal, Mr. Vaughan said. "We're dealing with hospitals, trucking companies, doctors' offices - a whole variety of customers we never thought about," he said.
As the banking industry gears up for the October implementation of the Check Clearing for the 21st Century Act (known as Check 21), many banks are eager to see paper checks converted to digital images as early in the processing stream as possible. This can take place at the teller window, at the automated teller machine, and now, with this type of remote capture service, at the customer sites where the checks are first received.
Bank of America Corp. began a pilot program in December with a client, a property manager, and has said it expects the service to be widely available by midyear. Other leading cash management banks - including units of Wells Fargo & Co. and Bank One Corp. - are also working on the remote capture of images for deposit by corporate clients. Wells has said that it views image deposits as an opportunity to build up its lockbox business in particular.
Market watchers said that First Tennessee's speed to market could give it a boost in the growing business of cash management for smaller companies.
"It's a great solution for small business, when you think about it," said Avivah Litan, a vice president at the research and consulting firm Gartner Inc. and the research director of the firm's financial services practice. "It's another example of innovation coming out of the small-business community."
Danne Buchanan, the chief executive of NetDeposit Inc., a Zions Bancorp unit that specializes in high-tech check clearing, agreed. "First-mover advantage in this will make a big difference for banks," he said.
NetDeposit, which provides the remote capture service for Bank of America and others that are developing the capability (First Tennessee is not one of them), said the service could help a bank attract and retain an appealing group of small and midsize business customers. "Once you lock them up, it's hard to unwind," Mr. Buchanan said.
He added that many large institutions are still deciding how to deal with image-based check clearing: "They're anxious to get going, but it takes a lot of work for a big bank to get moving."
By contrast, the $25.1 billion-asset First Tennessee was able to move forward faster, Mr. Vaughan asserted. "We know other banks are piloting this," he said. "Sometimes smaller is better. We can be more nimble."
First Tennessee tested the system last year with an internal customer, its commercial insurance unit Synaxis Group Inc. The first deployment was at an office in Tennessee where, as Mr. Vaughan put it, "If it didn't work, they could walk across the street and make the deposit."
But it did, and the hardware was added at locations in Kentucky and Atlanta. The system went into commercial operation in December and now has several customers, though Mr. Vaughan would not say how many.
First Deposit Plus, built on software that First Tennessee developed in-house, uses commercially available check-scanning equipment. The customer must review each check image on the computer screen. "The software forces that," Mr. Vaughan said, describing the manual step as a safeguard against a bad scan. "You can't send a deposit unless you've looked at every check." The customer then transmits the images and an electronic deposit slip to First Tennessee as an encrypted file.
The process puts the original check in the hands of the business, which can decide how to dispose of the item. "We're leaving that up to the client," Mr. Vaughan said. Most businesses retain the original until they are certain the image deposit was processed properly, and then they destroy it. But First Tennessee is offering to reconcile a business' original checks against its image deposits, typically on a weekly basis to minimize transportation costs, Mr. Vaughan said.
That leaves open the question what happens if an imaged original shows up as a deposit later. If it does, the check writer has "recourse back to us," Mr. Vaughan. But he said the bank would also hold the business customer liable in such a case.
When First Tennessee receives the check images, it prints them out, creating image replacement documents - or IRDs - for processing through its own check sorters and for clearing and settlement by conventional, paper-based means. Eventually the bank plans to skip this step and process the items as digital files.
"We expect to be able to do complete image exchange with several other banks come October," when Check 21 takes effect, Mr. Vaughan said. He said the question would be the readiness of other banks to handle clearing via image. "I can send an image all day long, but someone else has to be able to receive it."
The first banks with which First Tennessee would settle by image are likely to be other users of Viewpointe Archive Services LLC of Charlotte. First Tennessee has stored its images since 2001 at Viewpointe, which runs a shared repository of check images from several of the nation's biggest banks. First Tennessee announced plans last month to settle transactions this year through the Viewpointe system, joining Bank of America, J.P. Morgan Chase & Co., U.S. Bancorp, and SunTrust Banks Inc.
Mr. Vaughan said First Tennessee might turn the technology over to a vendor for further development and licensing to other institutions, though there are no current plans to do so. "We're a bank, not a software vendor," he said.
