Transcript Document
Electronic Check Capture at
the Source
Presentation by
Tom Kettell
Vice President, Marketing
RDM Corporation
November 17, 2005
Monumental shift in the
payments landscape
The Transformation from
Physical to Virtual
Bank Lockbox
In-House Lockbox
Agent/Branch Deposits
Bank Lockbox
Clients
Internal Lockboxes
and Third-Party
Lockbox Providers
Point-of- Payment Collections, Drop Box Payments,
Low-volume Lockbox, Route Collections
Bank/Regional
Sites
Fed/Local/Regional
Clearinghouse
Paying Bank
Physical Items
The Transformation from
Physical to Virtual
Electronic
Bank Lock Box
Bank/Regional
Sites
Customer In-House
Electronic Lock Box
Fed/Local/Regional
Clearinghouse
Agent/Branch Electronic Deposits
ARC System
Fed/EPN/
Visa
ECP/IRDs
Fed/ECCHO
Paying Bank
Physical Items
Optimized Items, ACH (POP/ARC) or IRD/ECP
The Pricing Dynamic
Source: Federal Reserve. Compiled by NACHA The Electronic Payments Association
Check Electronification is Growing Even as
Check Volume Declines
ACH e-checks continue to
experience double digit growth
25.00%
20.00%
15.00%
2004
10.00%
2003
5.00%
0.00%
2001
Source: NACHA
2002
Growth of ACH e-Check Entries
Source: 2004 Federal Reserve Payments Study
Check 21 has fostered change and
significant opportunities
Check 21 – First Nine Months
Federal Reserve Experience
In September 2005, processed ~35
million items through Check 21
services
All were converted to substitute
checks for presentment
Peak day: 2.5 million items (3% of
total items processed
Worth $16 billion ($10,000/check,
16% of dollar volume)
FedReturn volume averaging
25,000 items/day
Check 21 - The Lighter Side
Is Check
Electronification
Strategic to Your
Organization?
(Its not just for the Big
Guys)
Channel Proliferation
Point of Purchase
Walk in payments –
Distributed Locations
Mail in payments –
Centralized Locations
Face to face
POP
Substitute Check
Image Exchange
Drop Box
ARC
Substitute Check
Image Exchange
Lock Box
ARC
Substitute Check
Image Exchange
What are the Implications?
What technologies/capabilities?
Cost savings?
Customer demand?
Revenue or marketing
opportunities?
Faster collections?
Breaking the bonds of “footprint”
What are the Implications?
With the implementation of Check 21 married with ACH, check
conversion becomes true check electronification
No exception items - All checks can be electronified (business checks, money
orders, et al)
Items can be cleared through the most optimal clearing channels based on:
ACH eligibility
Dollar value of the item
Time required to clear the item
Cost to clear the item
Check Electronification Tool Kit
ARC
POP
WEB/TEL
Substitute Check
Image Exchange
What are the Implications?
Check electronification at the source
will yield the best cost dividends
The greater cost benefits are achieved
the earlier in the process the check is
electronified
Major contributor is in the workflow
What are the
Impacts of a
Check
Electronification
Program?
Impacts of Check Electronification
Complete electronification at the source will lead to the following
benefits:
In-person, drop box and exception payments handled outside of a lockbox
operation environment can be electronically settled.
Agent and branch offices can electronically deposit all items accepted in the branch (with
the exception of cash)
This leads to the potential to eliminate significant levels of your cash
management structure, such as local depository accounts, cash
concentration of funds into home office, account reconciliation of
depository accounts and streamlined posting of billing data.
Lockbox operations can be re-engineered to eliminate processing passes
associated with encoded and sorting checks, as all items could be deposited
electronically via Image Cash Letters.
Impacts of Check Electronification
Increase funds availability, better cash forecasting
Electronically deposits all checks to company’s account next business day, providing faster
collection and faster notification of returned entries
Reduced number of return items
Electronic debits typically post before checks, resulting in more items clearing on first
presentment
Automate and accelerate return item processing
ACH provides early notification of return items, carrying deposit location identifier
Immediate or delayed re-presentment of returns
Does not require consumer behavioral change
Reduce or eliminate local depository accounts
Fewer accounts to reconcile, reduced bank fees, elimination of cash concentration costs
Simplification of reconciliation of remaining accounts
Reduce labor and check processing costs
Eliminate check deposit preparation
Decrease deposit transportation charges and check float
Check Electronification: Offensive or Defensive?
Check Electronification: Offensive or
Defensive?
Financial Institutions are taking one of two strategies in the
beginning stages of Check Electronification
Defensive Strategy
Protect current customer base
Offensive Strategy
Protect current customer base
Expand customer base
Expand footprint
A shift in strategy occurred in 2005 from the defensive to the
offensive for those early adaptors
What Markets
Can Benefit
From a Check
Electronification
Program at the
Source?
Key Market Segments
Mid to Low
Market Segment
Payment Types
Payment
Volumes
Non-Bank Financial Institutions Branch Locations
(Mortgage, Finance Companies, Investment Brokers, Financial
Planners, etc.)
Payments for loans, mortgages,
investments, leases, etc.
Low to mid
Utility Companies Office Locations
(Gas, Water, Electric)
Bill Payments
Low to mid
Government
(Federal, State, Local)
Taxes, licenses, fines, recreation
fees, etc.
Low to mid
Insurance Companies Office Locations
Premium Payments
Low to mid
Property Management Companies
Rent, Utilities, Fees
Low to mid
Telecom Service Providers Office Locations
(Telephone, Cell, Cable, Satellite)
Bill Payments
Low to mid
Health Care Office Locations
(Hospitals, Doctors, Chiropractors, Psychologists, etc.)
Bill Payments, Fees, Payment for
Meds
Low to mid
Educational Institutions
(Colleges, Universities, Private Schools)
Tuition, Residence fees, Books, etc.
Low to Mid
Key Market Segments
Mid to High Volume
Market Segment
Payment Types
Payment
Volumes
Bank Financial Institutions
(Mortgage, Finance Companies, Investment Brokers, Financial
Planners, etc.)
Mail in payments for loans,
mortgages, investments, leases, etc.
Mid to high
Utility Companies Centralized Lock Box
(Gas, Water, Electric)
Bill Payments
Mid to high
Government
(Federal, State, Local)
Taxes, licenses, fines, recreation fees,
etc.
Mid to high
Insurance Companies Centralized lockbox
Premium Payments
Mid to high
Property Management Companies
Rent, Utilities, Fees
Mid to high
Credit Card Companies Centralized Lockbox
Card Payments
High
Case Study | U.S. Treasury
The U.S. Treasury’s Financial Management Services division and
the Federal Reserve Bank of Cleveland needed a paper check
conversion solution that could be deployed to all agencies
Had to support a highly distributed network of approximately 200 agencies
ranging in size from 1 to 1000s of locations.
Had to be scalable (future volumes could be large)
Had to be robust (e.g. Army installations)
Had to be flexible (Variety of agency specific needs)
Had to be secure (Government – Army, Air Force, IRS, etc)
Had to be very easy to use (remote locations, minimal training)
Case Study | U.S. Treasury
Germany,
Belgium,
Bosnia,
Kosovo
Military Bases
Singapore,
Korea
Military Bases
United States
Patent &Trademark Offices
IRS
DECCA (Military base stores)
& other agencies
Qatar,
Kuwait
Military Bases
Case Study | U.S. Treasury
FRB Dallas
Archival
ACH Processing
Verification Database
Daily https Transmissions
Images & Transaction Data
Local Verification Update
From Main Database in Dallas
Case Study | Large University
Accepted check payments for Tuition, Residence fees, Books, etc.
In addition to a centralized repository a significant volume of
walk-in payments at multiple locations
Desire to improve float position
Reduce or eliminate local depository accounts
Fewer accounts to reconcile, reduced bank fees, elimination of cash
concentration costs
Simplification of reconciliation of remaining accounts
Reduce labor and check processing costs
Eliminate check deposit preparation
Decrease deposit transportation charges and check float
Desire to provide better management of cash
Wanted one provider to “do it all” – did not want to manage it
Case Study | Insurance Company
Significant volume of walk-in payments at multiple branch
locations
16% - 17% of all payments are walk-in or mailed to the
branch location
Desire to improve the check handling efficiencies at the branch
location
Desire to improve float position
Desire to reduce deposit accounts
ACH non-eligible (business checks, money orders, convenience
checks) and cost structure for equipment for large number of
locations caused challenges for ARC-only
Deployment
Thorough planning is
the key critical
success factor for
successful
deployment
Steps in Planning
Project management
Resource allocation
Training
Investigating
Testing
Implementation
Operational Considerations
Planning
Plan every installation in advance
Get IT involved early in the process
Are there any restrictions on Internet use or special procedures for Internet
access? (i.e. Firewalls, Proxy Servers, etc)
Do you or your customers have access rights to the workstation/network that will
allow you to load the software on the workstation? (i.e. Administrative Privileges)
Are there any special security considerations regarding workstations or
networking?
Identify any need of the remittance systems to interface with any other
applications and test the interfaces before installation
Is any new development required on legacy systems?
Select providers that can help you integrate your program
Establish a System Administrator who will be involved in assigning
duties to the personnel at each workstation
Operational Considerations
Planning
Conduct a 360º site survey of the local environment prior to
implementing new solutions
Create a checklist that will ensure a thorough inspection of the
location
Understand the work flow, identify any issues
What is the average daily transaction volume including peak times?
How is work distributed for data entry (i.e. single operator or multiple)?
Does the communications at the customer site provide adequate throughput
to handle the transaction volume? (i.e. Dial-up vs. high-speed Internet)
Are remittance coupons submitted with payments?
Conduct an end-point analysis to gage the volume of ACH vs.
IRD/Paper/Image Exchange
What is the procedure for non-convertible items…IRD? Paper?
Operational Considerations
Implementation
Training
Ensure that the all staff is well trained and understand their roles before
implementation
System Administrators
Operators
Help Desk
Internal Trainers
Pilot before you roll-out !!!
Many skip this important step
Helps you understand the work flow changes
Gives you time to refine your procedures
Controlled Environment
Operational Considerations
Implementation
Have clear cut measurements to define pilot success
What makes for a successful pilot?
Conduct formal pilot assessment to ensure pilot success metrics are met?
Investigate why certain success metrics were not met and document a plan to
address each one
Are you ready to roll-out?
The pilot should drive the business case
Operational Considerations
Pitfalls
Plan for the Unexpected
Endorsement Returns How are the payee financial institutions going to
react?
Duplicate Items – Safeguarding from the double post
Updating procedures and best practices to reduce double postings
Corporate
Financial Institutions
Fed
Administrative Returns
Insure controls are in your process (or your vendors process) to avoid
them
MICR read and verification
MICR scrubbing and swapping
Plan for future business needs. Invest in technology that lays the
groundwork for future innovation
Image Exchange
IQA
Comprehensive Check
Electronification Platform
Off-Premise cash letter (customer lockbox)
Distributed payment capture (drop box)
Person present
ASP model – faster time to market with little to no capital
investment
Supports ACH, Paper Draft (traditional and substitute check), and
Image Exchange initiatives
Consistent rules base across multiple touch points of presentment
Provides a consistent customer experience
Basic remittance capabilities – scanning remittance coupons for
decisioning
Can scan multiple coupons and multiple checks
Comprehensive Check
Electronification
Internet
(ISP)
https
Modem Banks
Lockbox
Retail POS locations
(terminal-based)
ODFI
Rules for “e-nabling” your
Check Processing Environment
Don’t be seduced by new technologies for the “cool” factor
Understand the business case, and develop metrics
Keep focused on your customers
Plan for future business needs. Invest in technology that lays the
groundwork for future innovation
Don’t be afraid to change old habits
Ensure that your entire organization understands the reason for change and is
adapting to and promoting the new technology
www.check21solution.com
Thank you!
Q&A