Kaiser Federal Bank is shedding paper checking and the hardware used to process it. The bank is turning to a fully hosted, pay-per-volume system that will centralize digital processing across different channels used for deposits, and allow the community bank to outsource almost all of its check deposit activity.
"We only have six people in our IT department, so to remove maintenance requirements was attractive to us," says David Hanighen, chief information officer of the $944 million-asset Kaiser Federal Bank, which is based in Covina, Calif.
The bank has contracted to use a hosted proof of deposit (POD) product from Computer Services Inc. (CSVI). Hosted POD is a new version of the tech firm's existing Summit.net check image platform that leverages virtualization to provide needs-based allocation of the processing service. Hosted POD uses an open platform that enables it to interface with the bank's existing core processing system to retrieve and process checks. The virtual servers are maintained within the CSI data centers in Kentucky, and the fee to the bank is based on item volume and length of storage requirements. This a model is designed to reduce the upfront cost of deployment, with recurring costs based on need rather than a fixed rate. It's a pricing method for check processing that should pick up steam as banks — particularly smaller institutions — look to reduce expenses for check volumes that are declining, but still high.
Bernard Golden, CEO of Hyperstratus, a cloud computing consultant, says the cost savings are primarily related to offering the service on an outsourced basis. "The buyer no longer has to buy and provision hardware and devote operations personnel to running a non-critical application," he says. The virtualization aspect is a way for the provider (CSI) to create a robust and scalable solution.
Golden says there will be a robust market for this type of strategy going forward. "It's a natural disaggregation of the application functionality, transferring what used to be the responsibility of the buyer to the provider, who has more expertise with the system, can centralize operations, reducing the overall cost of running the system and amortizing the remaining cost across all customers, and reduce total cost to the user," he says.
At Kaiser, branch-based check deposits and eventually ATM and mobile check deposits will be transmitted to CSI's server for processing.
This will allow the bank to reallocate internal resources to developing non-check digital payment solutions, as well as free up IT staff to do more developmental work, since further updates to the system can be delivered via the web. When the new system goes live in September, the bank will start with branch capture, then add ATM image capture and remote deposit capture.
To adhere to new FFIEC guidelines for cloud computing that require banks to ensure controls over data as it moves between the bank, a third party, and other parties, CSI says it uses a mix of tracking and an internal FFIEC reporting tool to review each deposit for validity, with a rules-based flagging mechanism for transactions to be reviewed. Hanighen says the bank reviewed CSI's FFIEC compliance measures and is confident in the hosted image system. "They do a good job of staying up on regulatory requirements, it wasn't a difficult decision."
Other providers of similar technology include Ongoing Operations, which in June partnered with CheckAlt to sell a cloud-based Check 21 solution (Check 21 is the law that allows paper checks to be replaced with images for processing). Ongoing Operations is a credit union service organization and CheckAlt provides electronic processing. Ongoing Operations will host CheckAlt's Check 21 platform within its cloud-based infrastructure, which is designed to connect credit unions' processing systems with third parties.
And WAUSAU offers what it calls flexible delivery for its payment and check processing solutions. That includes services for remote deposit capture, integrated receivables and wholesale lockbox.