Facing a growing threat from large retail banks, community banks are starting to implement remote-capture check imaging systems.
It seems most of them are less intent on offering corporate customers a new service than on countering the banking giants that, until now, were not considered a threat if they did not have branches near these smaller banks.
The competitive landscape has been redefined, however, by check imaging, and especially by remote capture. In the past year several big banks have started offering the service, which allows corporate customers to make deposits electronically by converting checks to image files and transmitting them to a bank.
Early advocates of remote capture suggested it would save merchants a trip to the branch across town. But many banks quickly realized that it would also enable those merchants to do business with a bank in the next state, and with much larger rivals trying to take commercial business away from them, smaller banks have been forced to make remote capture available.
Ron Gafron, a senior vice president and the chief technology officer at the $920 million-asset Glenview State Bank in Illinois, acknowledged that its plan to offer remote capture is a defensive move. "The business case is a lot stronger for them than it us for us," he said of big banks.
Mr. Gafron said that selling remote capture to his local customers might prove a challenge for Glenview, which has six branches in the Chicago area. "For a business that is six blocks away from the branch, you have to wonder if it's worth the cost."
But remote capture is becoming a must-have for community banks, he said. "We have always made it a point to match the capabilities of the big banks."
Glenview State is installing remote-capture software from Metavante Corp.'s Advanced Financial Solutions Inc. (Metavante is the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp.)
"Like any bank, we have a small group of core customers that we know are interested in it - our go-to guys," Mr. Gafron said. "They're interested. They're waiting for us to get the system in place."
Aaron McPherson, a research manager at Financial Insights Inc. in Framingham, Mass., said big-banks' use of remote capture is "very threatening to community banks. It's horning in on their franchise."
Regional businesses and government accounts are the bread and butter of many community banks. But large banks have already pegged their corporate customers as the ideal location to convert paper checks into electronic files; expanding into new regions for additional corporate customers is the logical next step.
First Horizon National Corp. of Memphis was one of the first to offer desktop check scanners to corporate customers, in March 2004. Since then a host of others - including Bank of America Corp., NetBank Inc., Bank of New York Co. Inc., HSBC Bank USA, and BB&T Corp. - have announced similar plans. Wachovia Corp. has said that remote capture will become one of its leading cash management products.
"It's a way for national banks to extend their reach," Mr. McPherson said. But "for the community banks it's a defensive move. We think this is going to be a big area of competition."
Donna Irish, the vice president of operations at Savings Institute Bank and Trust Co. in Willimantic, Conn., said the $603 million-asset company plans to offer remote capture as a cash management service to complement other corporate applications, such as originating automated clearing house payments and payroll processing.
"It's not a defensive approach as much as it is a convenience," Ms. Irish said.
Ms. Irish's bank is installing imaging technology in its 15 branches. It should be live at all of them by mid-May and at the main branch on April 26, she said. The bank has not approached potential customers for remote-capture services, she said.
Ted Umhoefer, the senior vice president of product management and industry relations for Fiserv Inc.'s item processing group, said the Brookfield, Wis., outsourcer plans to introduce a remote-capture service in May for its item-processing clients. Fiserv is the largest provider of outsourced item processing, and most of its customers are smaller regional banks and credit unions.
Community banks, especially those in rural areas, "have been very active in branch capture," Mr. Umhoefer said. They are already using image systems to move files from a branch to a processing center, and they want to extend that capability to their depositors, he said.
"They can match, feature for feature, what is being offered by the largest banks, and they can do it with the personalized service that their customers have grown accustomed to," Mr. Umhoefer said.
A smaller outsourcer, COCC of Avon, Conn., is following Fiserv's lead. Joe Lockwood, COCC's chief technology officer, said his bank customers are starting to ask about remote capture. "We're hearing it more and more throughout our client base."
COCC, a cooperatively owned outfit that primarily serves community banks and credit unions in New England, is developing its branch capture systems and has about two dozen banks waiting for that technology. Mr. Lockwood said he plans to offer remote capture as well by summer, and he expects his bank customers to "take the next step and go to their customers for merchant capture."
For community banks, remote capture presents opportunities and risks. For example, it could upend traditional branching strategies.
In the past, Mr. Gafron said, banks would open a new branch and then seek out customers. With remote capture, "you've got an opportunity to go out and find the customers first."
Mr. Lockwood said that while cost reduction is the main goal with branch capture, with remote capture it is customer service. "Branch capture is nice because it gives them some immediate returns," he said. "Merchant capture is valuable because it really cements that relationship."
