Businesses have jumped on the check-image bandwagon more enthusiastically than bankers had expected, possibly because they see a bigger payoff than bankers recognized.
As they do with any significant technology investment, companies are weighing costs against the operational and financial benefits they expect to accrue through the remote capture options now available to them. A similar process is playing out among banks that have to decide whether to extend that service to commercial customers.
Some observers are now arguing that banks may be underestimating the value their customers place on remote capture. If that is correct - and opinion is far from unanimous on this subject - it could have competitive ramifications for those who are slow to offer the service.
Last week John Leekley, a consultant, presented his case for rapid deployment of remote capture to nearly 100 bankers and corporate listeners on a webcast sponsored by Alogent Corp. of Atlanta, a vendor of check-image technology.
Mr. Leekley, a partner in the Parsippany, N.J., consulting firm Blue Mountain Enterprises LLC, tracks the imaging business for a Web site, RemoteDepositCapture.com.
He said bankers do not fully understand how corporate clients view the value of remote capture.
Bankers tend to see the benefit in terms of reduced check float, he said, and they calculate the business case for image investments using a rate of return such as the federal funds rate, the overnight rate they pay until funds come in to settle those payments. That rate is now around 3.5%.
When bankers think about their customers' perspective, they tend to think in terms of the prime rate - what the best corporate clients pay on their short-term loans - Mr. Leekley said. That rate is now generally 6.5%.
But that is not the appropriate measure, Mr. Leekley said. Corporate treasurers are more apt to view the benefit through the prism of their weighted average cost of capital, a standard method of analyzing and optimizing corporate investments, he said. He estimated that cost at about 15% for companies in the Standard & Poor's 500.
On that basis, he said, customers would "absolutely" move business to a bank that offered the service from one that did not.
Only about half of the nation's largest banks offer such services, Mr. Leekley said. "There is really a race out there among the leading solution providers," he said. "The bank needs to sell some kind of functionality to the end user."
Lex Litton, the vice president of operations at the treasury management research firm Phoenix-Hecht Inc. of Chapel Hill, N.C., agreed that the weighted average cost of capital is the appropriate way to view the value of the payments to the company.
Payment float has long been a feature of the financial system, so "it needs to be valued at long-term rates," Mr. Litton said.
The Check Clearing for the 21st Century Act has fundamentally changed the way companies deal with the continuing issue of check float, Mr. Litton said.
"I do think that is a very pleasant surprise of Check 21," he added. And as corporate executives realize the advantage they will gain by strengthening their financial systems, "banks that are not involved in this are going to be behind the competitive 8-ball."
But not everyone is persuaded by the argument. Among the skeptics is Taylor J. Vaughan, the senior vice president of cash management services at First Tennessee Bank of Memphis, a unit of First Horizon National Corp.
Mr. Vaughan said he does not tell the bank's clients how to perform the calculation. "We ask the question of the customer, 'How do you value the funds that you supply to the bank?' " he said. "If they say the value of the money is prime, then that's the value of money to them."
First Tennessee was one of the first to offer remote capture, beginning in the first quarter of 2004.
Remote capture has definitely brought First Tennessee new customers, Mr. Vaughan said. "I'll put it this way: I've got scanners in 33 states; I've got branches in four."
But he expressed doubt that those customers left other banks just for the new service. "I don't know if you're going to lose your business just because you weren't the first one out the chute" with remote capture, he said.
John Gannon, a vice president at Bank of New York Co. and its product manager for remote check deposit, agreed that the capital calculation is a factor, "but that's just one component," he said.
One company might improve funds availability by making an image deposit by today's deadline rather than a paper deposit overnight, Mr. Gannon said. Another might save money by transmitting images to a cash-concentration bank and closing accounts at local banks with which it lacks other relationships.
"Then there are less measurable benefits," he said, such as the ability to integrate remittance information into other corporate systems, eliminating the need to re-key data.
KeyCorp of Cleveland is a relative newcomer to the remote-capture market; it began setting up customers after completing a pilot test in June. It has eight corporate customers imaging their own checks now and expects to have four more doing so by the end of August, vice president Debra L. Sciano said. Their check volumes range from 20 items per month to 2,000 to 3,000, she said.
Ms. Sciano, a senior product manager in KeyCorp's global treasury management unit, also said users are attracted for a different reasons. "I'm not sure weighted average cost of capital would apply to every customer," she said.
Selling the service is not a problem, Ms. Sciano said. "We have a huge pipeline of customers" at various stages of planning, she said.
KeyCorp provides a worksheet that businesspeople can use to calculate the costs and benefits of remote capture, but "every customer is different," Ms. Sciano said.
"For one client it may be availability. For another it's the reduction in transportation expense," she said. A small business may want the person who goes to the branch stay in the store. "To some of our customers, those small benefits are huge."
