A new set of guidelines has given bankers a better idea of how regulators will evaluate their use of remote check-image capture services, and it might prompt financial companies to accelerate their use of the technology, according to market watchers.
The Federal Financial Institutions Examination Council's guidelines warn that banks should consider remote capture not just a service but a new delivery system requiring top-level oversight.
Daniel J. McCarty, the senior vice president of treasury management at Comerica Inc. in Dallas, said he believed the guidance would stimulate some laggard banks to introduce the service to business customers. "Now that the guidance is there, you can determine whether you're in compliance," McCarty says. "You know what you're going to be measured against."
But more remote capture would also lead to more check returns as customers double-deposit checks, either by accident or fraudulently, which should cause banks to demand information about these returns of the sort available on automated clearing house or wire transfer returns, said McCarty, who also chairs the American Bankers Association's payment system's committee.
John Leekley, the founder and chief executive of the consulting firm RemoteDepositCapture LLC in Atlanta, said bankers will need to consider carefully how they introduce the service. "Remote deposit capture is really a different animal," he said. "It's different for every customer. It's different for every bank."
Bob Meara, a senior analyst at Celent in Boston, said the guidelines that were released in January by the FFIEC, a coordinating group for federal and state regulators, will reduce the fear and uncertainty that many banks felt about remote capture. "The best part of this guidance is that it's finally published," Meara said. "I don't think this throws a wrench in the works as some feared it might."
William Henley, the director of information technology examinations at the Office of Thrift Supervision, said the FFIEC specifically chose to offer principles rather than prescriptions on how banks should address remote capture. "With respect to technology, we try to avoid being prescriptive," he said. "If we try to be prescriptive, as the technology evolves, we're always playing catch-up."
The nine-page guidance document gives lengthy lists of issues that banks should consider when drafting the legal agreements covering their remote capture services and assessing their operational risks.
It also puts some emphasis on the more complex issues that some institutions may face, such as the use of least-cost routing systems to determine whether to clear a check as an image or convert it to an ACH transaction and working with cross-border customers who may be outside U.S. legal jurisdiction. "International cash letter used to be the exclusive province of a small group of large institutions," said Leekley, who once ran such an operation for Deutsche Bank in New York. "Today, small-town bank USA can offer remote deposit capture to anybody. It is inherently a riskier proposition than domestic deposit and clearing."
The guidance took effect immediately for all examinations and may require that institutions train not only their own employees but also the customers to whom they offer the service, Henley says.
Banks have been cautious about introducing the service, offering it first to large corporate clients. In the last 18 months some have offered it to consumers, Leekley says, estimating that the industry has 75,000 consumer and small-business customers for RDC. According to Celent estimates, there were an estimated 382,000 total end-users at year's end 2008, with more than two-thirds of U.S. banks and 40 percent of all U.S. institutions offering RDC. "Banks are realizing that it's not about the fees," says Leekley. "It's about the deposits."
Steve Bills is a reporter for American Banker.
