An increasing number of community banks are finding that imaging technology for check processing, though pricey, pays off because it reduces operating expenses and generates fee income.
The penetration rate of check imaging systems in the community bank market is still low - several hundred out of about 8,000 institutions in the United States, according to the Tower Group, a Wellesley, Mass.-based technology consulting firm.
But the number of small banks using imaging is expected to double every year for the next three years, according to Tower Group research.
The use of imaging by small financial institutions is being spurred, in part, by the availability of affordable systems from a growing number of software and service bureau providers, analysts said.
In addition, since community banks have lower check volumes, their work processes are simpler and systems are less expensive, enabling them to adopt the technology more quickly than larger institutions.
Many community banks view imaging as a way to gain a competitive edge. Using the technology to produce image statements, for example, gives them a product offering that many regional banks do not yet have.
Image statements provide images of canceled checks rather than the actual items. Since the image they are less bulky, banks can save on postage and can streamline statement preparation.
At Chillicothe, Mo.-based Citizens Bank and Trust Co., for example, it used to take seven people three days to prepare statements, said James Thorpe, director of information systems. With the use of an imaging system provided by Peerless Systems Inc., one person can perform the process in half a day, he said.
Because the image statements weigh less, Mr. Thorpe estimates that the system, which was installed in August, will pay for itself in 30 months because of postage savings.
The bank, a unit of $500 million-asset Citizens Banchares, is also using imaging for proof-of-deposit functions, another area where imaging can yield significant savings.
Proof of deposit, in which check amounts are read and encoded on the items in magnetic ink, is one of the most labor-intensive tasks in the check processing area. With image technology, in which special cameras take pictures of paper documents and store them digitally, this function can reduce check processing costs by 20% to 30%.
Citizens Bank processes 50,000 items a day. With imaging, it takes a third of the time to process and reconcile the items, compared with traditional methods, said Mr. Thorpe.
By imaging items, the bank has also sped up its responses to account inquiries, he said. While they currently fax copies of items to customers, within the next few weeks, they will be adding the capability to allow commercial customers to tap into account information remotely from personal computers.
Using imaging to provide additional services to customers may also be a way for community banks to generate fee income.
A growing application is sending canceled checks to corporate customers on CD-ROM disks, for example.
Banks can also produce customized check statements and activity reports using special software.
Richardson, Tex.-based Peerless Systems, for example, offers software that allows customers to categorize their checks, enabling them to get a breakdown of where their expenses are going.
Using special checks provided through a bank, customers write in codes at the top of a check - indicating that the item was for groceries or a utility bill, for example. The software reads the code and dollar amount using character recognition technology and automatically categorizes and stores the check information. Using this data, the bank can provide, for a fee, a document showing a breakdown of where expenses went for the year.
According to Kevin Marsh, a vice president at Peerless, for a typical $250 million-asset bank, over $100,000 in fee income could be generated in a year using the software to sell customers additional services like the expense tracking product, assuming that 10% of the bank's retail customers and 5% of its commercial customers opt for it.
The company's check imaging system runs on personal computers and uses document processing software from Document Solutions Inc., Birmingham, Ala.
