Since the introduction of the Check Clearing for the 21st Century Act (Check 21 Act) in 2004, more than 97% of all deposits are now presented electronically (See Figure 1: Check 21 Image Exchange Penetration Trends).
The high adoption rate among financial institutions is attributable to both the steadily increasing cost of paper processing and the operational efficiencies gained by switching to image processing. These changes in costs and the benefits inherent to image-based item processing have been well-documented. However, can financial institutions derive even greater benefits by bringing item processing in-house?
Although outsourcing remains the most popular choice for item processing among credit unions, there are indications a widespread shift toward in-house solutions is underway. Why are credit unions making this shift? What do they have to gain? What is the process, what are the costs, and what are the requirements for moving item processing in-house? This paper presents the results of an in-depth study on item processing based on survey data, case studies, industry trends, and interviews with industry experts.
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Check 21 as an Enabler of In-House Solutions
Paper check processing is labor intensive. Transporting and sorting paper checks are activities well-suited for outsourcing to providers that can handle enormous volumes and benefit from economies of scale. Once the paper is eliminated, however, so is the need for an outsourcer that handles the physical aspects of paper processing. Distributed capture and workflow automation have shifted most of the labor of check processing onto the institution where checks are captured in the back-office, the branch, or at the teller window. Whereas the labor-intensive aspects of item processing were the primary reasons to outsource, the elimination of these activities has now become a major reason to move it in-house. Simply put, outsourcing has become a costly and obsolete methodology.
Additional staff is unnecessary for a successful in-house implementation because the daily operational tasks are minimal. For institutions that are already operating Check 21-enabled branch or teller capture applications, implementing an in-house item processing solution can typically be done by re-directing the image files (X9.37) from the outsourcer to a clearing bank such as the Federal Reserve Bank or any other third-party image exchange provider. This requires a relatively small amount of new hardware. The credit union staff currently handling returns can easily process the X9.37 files with the time saved by return automation software that is standard in most Check 21 solutions.
Find out more about the benefits and costs of moving your credit union’s item processing in-house. Click here to download the free white paper from Bluepoint Solutions.