Checking Out Check Conversion in 2007

“You say your image is new, but it looks well tested.”
–The Kinks, Misfits

I think it’s fair to say that despite the prognostications of several people (me included), Check 21 implementation was very deliberate (read “slow” here) in 2005 and 2006. As we look at the 2007 project lists at banks, almost every one has a focus on check conversion technology. It’s time to take another look at the various strategies being put in place out there and discuss what happens next.

First, some background. There are several concurrent movements in check conversion, each very different in purpose and process involved, but at the same time part of one big Check 21 picture:

1. Merchant capture.
   Virtually every commercial bank and cash management group has deployed a merchant capture solution or has a project under way to get it in place. As it was with ATMs and Internet banking, in 2006/2007 merchant capture has become the “we had better do something about this or we’re going to get clobbered” project at most banks. And with some reason. Merchant capture, at least on paper, offers the rare trifecta in technology justification – it lowers cost at the branch, it helps cement a business deposit relationship (better float, for one thing), and it offers the opportunity to go after new business that is outside the bank’s branch footprint.
2. Branch capture.
   There are several flavors of capture at the branch. “Branch” capture is when the tellers post the initial transactions and a person in the back of the branch images/converts the checks at a later point in the day. “Teller” capture is when the teller actually images the checks when posting transactions. In either case, the items are converted at the branch.At this point, there are really two flavors of branch and teller capture that have been tried. In one scenario, the branch does the imaging of the check but there is still some proof function that occurs elsewhere at end of day. In the other, the branch effectively completes the proof function along with imaging the item.

   Every core and branch automation vendor I talk to has some branch capture solution in the quiver. Alogent  Vsoft and AudioTel are three examples of solutions for branch capture that can be obtained directly, and Benchmark Technology is an example of a vendor that has a solution for teller capture (by definition, teller capture systems have to be very tightly integrated with teller systems).

3. ATM capture.
   Both Wells Fargo and Bank of America, among others, have of late trumpeted their ATM capture solutions and the payoff they will generate. For those of you that have not used one of the newer ATMs that support this, you start by kissing the ATM envelope goodbye, ’cause you don’t use it. The check gets placed straight in and you’re asked to validate the amount the machine reads. (Out of Gonzonian curiosity and a sincere desire to provide you with the very best data, I deposited a $5 check, waited for the machine to read it properly, got asked if $5 was right, and said no, it was really a $50 check. Bottom line? For those of you with larceny in your hearts, save your time. It didn’t work, dammit. But I digress…)

   The first benefit of this is obviously that if all the checks are read/converted with no customer disputes, it isn’t necessary to take the checks out every day. This is good stuff, particularly with off-site ATMs where courier runs can be reduced. Second, the end result of being able to get the customer faster availability on the funds will ultimately mean that customers will increase the use of ATMs to make deposits. Ummmmm… more on that one later. Major ATM vendors (Diebold, NCR, et al) have integrated this capability into newer models, using either their own software or a third party solution like Wincor Nixdorf.

4. In-branch self-service terminals that will perform the same capture function as the ATM.
   This one is really a hybrid between branch/teller and ATM capture. The premise for this is that the customer will come into the branch and use this terminal in lieu of a teller. Again, there are two flavors of this vision. The first is the “branch of the future” vision, which pictures greeters/assistants that will point all customers to these terminals and help them when necessary. The second is more like that which can already be seen at airline counters and Home Depot – customers have a choice between tellers and self-service terminals.

Whew! By my count, that’s eight distinct strategies and deployments that in one way or another affect branch delivery, and I didn’t even start factoring in lockbox, ARC, merchant check-to-ACH conversion, and several other burgeoning ideas to kill the paper check.

So what’s a bank to do? First, let’s recognize that this is all very much in the early stages, and it’s not at all clear what solutions will get traction, what customers will really want to use, and what this means to the timing of investments and the ROI. To help sort this out, let’s first create a list of questions banks should be asking about check conversion. Then, I’ll give you my early impressions and suggestions.

Questions banks should be asking:

• Should we be thinking about and discussing all capture strategies together rather than one at a time? (Yes)
• Are all of these various capture solutions going to be a piece of the puzzle over the next five years? (Yes)
• Should we be purchasing all of these capture solutions from a single vendor that utilizes a common design and platform, which may give us a lower overall price? (In theory, yes. However, given how fast certain decisions such as merchant capture need to be made, this probably isn’t possible.)
• Should we buy branch capture solutions from our branch automation provider? (Probably, unless there is a compelling functionality or price reason not to. They’re sure the first look.)
• Is our ATM vendor the only realistic option for ATM capture? (Yup)
• How important is it to think about our overall IP/proof strategy when we’re thinking about these systems? (Very. If an IP systems upgrade or an outsourcing discussion is in the offing, make sure you have your vendor’s outline of its vision of all this.)

Other thoughts
Some of you have a pretty straightforward ROI for branch capture. Particularly for off-site ATMs and remote branches, if the implementation of ATM or a branch capture solution can eliminate one courier run a day, you’ll get back your investment in 18 months tops, and probably less. That’s the low-hanging fruit you should get right away.

Many of you are debating the right order in which to make investments. Merchant first? Branch first? Concurrent? My early take is that even though some of the investments in merchant capture may be a bit reactive at banks, it is still the best one to do first. One benefit of this is that banks can see how much check volume is taken out of branches completely before they undertake a large-scale branch project.

While there is about 10 times as much focus on branch back office capture as there is teller line capture, it’s possible that teller capture may actually be the better option at some banks – real time, low check volume shops may want to take a look at this option. Even if you go with the back office option, don’t do so without at least understanding what teller capture is – the process differences, the cost differences and the payoff differences. I think there may be a Betamax/VCR element to these two options right now – the much higher focus on branch capture may not actually be due to it being that much better a solution. Time will tell.

There is a feeling in the industry right now that in-branch, self-service units might be preferred over tellers by customers. I don’t get why. If I go to the trouble of walking into a branch, will I really use a self-service machine when a smiling teller is ready to help me? My guess is that there might be one real benefit from what I would term the Southwest Airlines/Home Depot factor. When you go to the Southwest check-in counter, you look at the line waiting to get to a human, look at the line for a self-service unit, and pick the one that will be the fastest at that time. The same may happen in branches, which means that with correct deployment (location in the branch, ease of use, etc.), these units may act as the solution for serious peak times. Not a bad alternative, in some cases, to a prime time teller.

I don’t think the new ATM deposit capability is going to increase customer use for these transactions unless it is accompanied by a very strong education effort by the bank that includes making clear that the customer will get credit as soon as they would from a teller. I wonder if that should really be a top-line focus right now.

“If I could change anything, then I would change everything.”
–Nine Days, Bitter

The bottom line here is that once in a while you get an opportunity to make a technology investment where the payoff is pretty obvious and straightforward. If you spend the money on the investment, some other cost will go away. Any of these types of capture may be such an opportunity in 2007. If it is, think through the big picture, make the investment part of an understanding of your bank’s overall capture strategy, and get on it.
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