Eighteen months after the rollout of check scanners into doctors' offices, convenience stores and corporate offices, analysts figure banks offering remote-deposit image capture services have snatched at least $150 million in deposits from competitors. More than 95 percent of U.S. business clients are still up for grabs.
For such a decentralizing technology, bugs and maintenance appear, at least anecdotally, to be minimal, mostly contained to the early use of distributed desktop environments running Windows applications (a ruefully predictable hazard) and front-line business customers clinging to dial-up Internet services, which simply aren't fast or reliable enough to cut it with large file sizes and volume.
Remote deposit is proving to be successful enough among the country's big banks that, according to Aite Group wholesale banking research director Christine Barry, regional and community banks are now poised to get into the action. Barry is surveying banks under $5 billion in assets. "By the end of the study I'll have spoken to about 500," she says. "Just about every bank that I've spoken to plans on deploying remote deposit in the next 12 to 18 months."
As with their larger rivals, community banks want to set up remote- deposit services because it helps them increase territorial reach in competing for customers and deposits without consuming time and resources building a brick-and-mortar branch in the area. "It's also a really good service," Barry says. "And service is their key strength."
Remote deposit falls under the aegis of services spawned by recent U.S. laws allowing the recipient of a check to create a digital image of it and dispense with further handling of the paper version. Banks distribute check scanners of varying sizes to business clients who sign up for remote-deposit service; checks come into the business, go through the scanner and the image is sent electronically to the bank. The business client then stores the check for a couple weeks and can then shred it. As with other aspects of the Check 21 legislation, remote deposit launched a cottage industry of specialized media interest, trade-show topics and white papers, which is why one of Barry's recent reports is called "Remote Deposit: All Talk, Little Action, with a lot of Potential."
A slow start's to be expected with any new service; after all, Check 21 itself is less than three years old. There were worries about new types of fraud, moving away from decades-old practices, new risks for the bank, and pushing out a time-honored bank procedure and making the customer responsible for it, sources say. But now many banks have a year or more's experience in the field with remote deposit services, and technology vendors appear to be moving toward standardizing elements of the software that make it work. This is increasing confidence among CIOs and those that hold the purse strings within banks to take a run at adding the service to its suite of offerings. Barry expects some 1,000 percent growth by 2008 in the number of banks delivering remote deposit services to customers. Granted, this percentage is so high in part because of low starting numbers. But with increasing use-analysts estimate less than five percent of U.S. businesses now use remote deposit-banks will start to see promised costs savings, accelerating adoption of the technology. "My [growth] numbers might be a little conservative," Barry says.
Iron Rule of Competition
If the arguments for offering remote deposit services aren't good enough on their own, then fear of competitors getting the upper hand might do the trick. One of the main points of remote deposits, from a bank perspective, is to increase territorial reach-business clients often need multiple banking relationships, simply because they need to post checks among scattered franchise locations. Removing the need for runs to a bank branch means firms can consolidate accounts in one place.
This is exactly what's happening, says Celent senior analyst Bob Meara, accounting for a swing of more than $150 million in deposits to banks offering remote deposit. That's chump change compared with what's out there to gain, and in an environment where banks are having a harder and harder time increasing core deposits without buying out competitors, it makes for an eyebrow-raising figure. "As deployments accelerate, that number is going to get bigger," Meara says.
Which is why in the last year Bank of America rolled out its service, built by tech vendor NetDeposit; HSBC opted for Alogent for its U.S. operations; Wachovia tapped Metavante; Comerica in Michigan retained Wausau; Insurors Bank of Tennessee went with ProfitStars, a division of the Jack Henry & Associates; and Commerce Bank went with BankServ. KeyCorp, Mellon and SunTrust also have services, going with Alogent, RDM Corp. and Alogent again, respectively. These three banks rolled out remote-deposit services starting with Key in June 2005 to SunTrust at the end of the year. Key has seen 225,000 check images flow through its system and is signing up 15 to 20 clients a month to its service. Mellon has only about 20 clients, but its system now sees 50,000 to 100,000 check images per month, and, with very little marketing, SunTrust has signed up 100 clients. Wells Fargo, of course, is in on the game, as is Winston-Salem, NC-based BB&T, a large regional bank with $100 billion in assets, even has a wholly-owned subsidiary-CPS, or Creative Payment Solutions-that not only arranged for a remote deposit rollout for its parent company, but hosts it in an ASP environment and sells the same service to other financial companies.
Bankers' Hours
BB&T's service, OnSite Deposit, has been in the market for about 16 months. Bank product manager Jean Voorhis says BB&T sells the check scanner to clients-an average scanner begins at $500 for a small one. While some banks are selling the scanners outright, others are going for the mobile phone model, where they subsidize the scanner in return for a longer contract. BB&T offers three scanner designs, which handle different volumes. Users pay a per-item and service fee. Like a lot of other banks offering remote deposit, BB&T extended its deposit deadline to 7 p.m; check images are processed and posted on the same business day up until this time. "It took awhile to ramp up," Voorhis says. "Over the last couple of months, we've seen 40 percent growth."
CPS chief operating officer Harold Williams picked Dallas-based Carreker Corp. as its technology vendor for the service, which combines several Carreker products, including Web Capture, which is a Web-based image-capture application; Corporate Capture, a thick-client application and database that sits on the desktop; and Source Capture, the central collection point for incoming transactions.
Williams' background is in processing, and he says he had concerns about the service as it was rolled out. "We needed to make sure the same controls are in place as we push it out to the end-user as we had when it was centralized," he says.
Celent's Meara says that's been a common worry, as in extreme instances a customer could bilk the system by capturing the image electronically and then running to the bank to deposit the check. "While there has been some evidence of that, it appears much of it has been unintentional," Meara says. From his research, all the technology vendors in this arena build in capability to regularly check for duplicates, intentional or otherwise. "Banks are able to catch these things rather easily," he says.
The real benefit clients see, Williams says, are the extended banking hours, simplifying and consolidating their banking relationships and, of course, not having to make employees take time to drive out of the way to the bank branch every week. Voorhis expects the service to gain popularity as it evolves away from thick-client applications, which can be complex to manage, toward Web-based solutions. She's seeing clients from across industries, from the services, wholesale, finance, insurance and some manufacturing sectors, running items through large and small. "We've really seen it take off," she says, with only a few snags. "We've had some clients say, 'Hey, we use dial-up.' And we say...it's really not going to work well for you," she says. "The files are large, so dial-up is not recommended."
Going Down Market
Interest among smaller business clients is growing. "Banks are seeing demand for this way down market that many didn't expect," Meara says.
Dave Foss, a general manager at Jack Henry's ProfitStars division, relays how an Arkansas bank culled a relationship with a 60-store convenience store chain after the service proved itself in an initial rollout to the gas station owner. The owner knew just what he wanted and how to get the bank's attention, Foss says. The client said, "'I'll eliminate all those banking relationships and bring them to your bank if you can...make sure that it works well for the five stores I have here locally.' So, we have some real fun stories like that, where banks are finding new markets they didn't have access to," says Foss.
As a result, ProfitStars has signed up 220 banks to its remote deposit product, which the firm hosts through its data center in Houston. Some 120 banks have the service installed; the banks range in size from $300 million in assets to $6 billion or $8 billion, Foss says, and through these banks, some 550 clients are using remote deposit. "It's a sticky application and they're making sure to go after clients and lock them into a tighter relationship," Foss says.
Investments in remote deposit vary, so it'll remain to be seen if the per-item and monthly fees contribute significant business, or if the ideal benefits remain greater efficiency, paper cost savings and market leverage in extending a bank's territory. Bets vary: Some banks are underwriting the entire scanner costs, trying to keep entry costs down for clients.
BB&T sees remote deposit as a business, and has poured hundreds of thousands of dollars in application software and some 5,000 man-hours in internal development. Foss says a ProfitStars installation runs $10,000 to $15,000, depending on what the bank wants; after that, it's a per-click charge.
But the U.S. market remains largely unclaimed. In Europe, paper checks are a rare or dying species. In Germany, the rent gets paid by instant and free electronic transfer from the ATM, and electronic transfer is the rule among businesses, as well. Number two in the check list behind the United States is France, which had 3.5 billion written in 2004, Meara says.
That same year Americans wrote 36-yes, that is 36-billion paper checks. So while Internet banking may yet make the same electronic inroads and save a few trees, there's a long way to go before checks are on the way out. In the meantime, scanners will whir.
