The Future of Item Processing
With the passage of the Check 21 Act in October 2003, financial institutions were permitted to process images through the Federal Reserve, lending to increased use of imaging technology. Many larger banks have taken advantage of the imaging process, linking branches and operations centers across the globe. In late 2006, USAA Federal Savings Bank was the first major institution to announce an "easy-to-use, secure new service" that allows all of their customers to deposit checks using a common scanner. However, commercial banks have primarily focused on introducing image capture services to businesses while credit unions have developed solutions focused on members.
Evolution of Checks
There were nearly 33 billion checks written in 2006. However, the number of checks paid fell by 7 billion from 2003 to 2006, decreasing at an annual rate of 6.4%. Checks processed through credit unions fell at nearly double the pace, decreasing 11.9% annually from 4.2 billion checks in 2003 to 2.7 billion in 2006. With the steady decrease in check volume, credit unions may not be able to justify the cost to offer a consumer level imaging service on their own, but will need to network through their corporate credit union and credit union service organizations (CUSOs).
These industry trends indicate that imaging is the way of the future. In a recent American Banker article, the Federal Reserve was quoted as saying they had reached a "tipping point" in September when more check images were accepted for clearing than paper checks. By December, nearly 60% of the Fed's forward presentments were arriving as images. The Electronic Check Clearing House Organization reported that as of November 2007 the financial system was handling images at an annualized run rate of 9 billion per year, with volumes expected to peak in early 2009. Southwest Corporate Federal Credit Union indicated that transactions processed with their branch and teller capture products increased to more than 5 million in November 2007 from 2.5 million in November 2006.
Three major trends in imaging will drive changes to the way checks are processed at financial institutions.
1. Branch and Teller Capture
Reducing courier pickups reduce transportation expenses for credit unions with a large or spread out branch network. If the credit union has a large number of deposit-by-mail transactions, employee costs may be reduced or eliminated. While branch capture systems are focused on back office operations, the front line can also be a part of imaging trends through teller capture. These systems can also increase processing speeds, reduce teller errors due to fewer keystrokes, and decrease staffing levels or allow representatives to focus on cross-selling.
2. ATM Image Capture
Image-enabled ATMs can help credit unions clear checks faster, reduce fraud and speed payments to members. Processing images enables fewer pick-ups from the ATM, reducing delivery charges. The faster processing time allows credit unions to extend the time period for same-day credit for deposits. Used in branches, these ATMs can provide members with an alternative during times of heavy traffic, such as during paycheck deposit days.
In a recent Internet Strategy Consortium survey of over 12,000 members nationwide, 48% used ATMs to make deposits. For those who did not 35% wanted to be sure their accounts were credited correctly and another 17% had concerns about accuracy. Most image-enabled ATMs ask members to approve the amount and print a thumbnail image of the deposits on the ATM receipt, ensuring accuracy and member comfort.
Image-enabled ATMs are also a viable alternative when considering new retail delivery channels, such as the growing network in 7-11 stores, utilized by both CO-OP Financial Services and FSCC. The machine's expanded capabilities offer greater convenience than traditional ATMs. Over time, increased familiarity and use will help reduce perceptual barriers towards ATM deposits. These capabilities can also be leveraged to increase confidence and use in shared branching options.
3. Consumer-level Remote Deposits
Extending imaging to members also means extending control of the deposit process. Certain members, such as active home banking users or frequent ATM depositors, will appreciate the convenience of depositing from home or work. Other members will continue to rely on the branch. In the 2008 Credit Union Technology Spending Survey, 6% of credit unions indicated they have implemented or currently are implementing a deposit system based on a common scanner. While small or micro-businesses are able to use these services, they may find it time-consuming to scan more than a handful of checks using a typical flat-bed scanner.
The Future of Imaging
Third parties are actively developing imaging products designed for financial institutions. Mitek Systems debuted new software that will capture paper checks and other images through cell phone cameras for members to make deposits. Checkfree, now a subsidiary of Fiserv, announced in February a remote deposit capture product ready to be used by online banking customers. The only necessary resources are a common scanner, computer and Internet connection - and the check.