New Uses for Check-Image Technology

By Kirk Pezdirtz, VECTORsgi / thePoint
January 30, 2005

After the recent enactment of Check 21 imaging legislation, most U.S. financial institutions have some type of system in place that allows them to conduct check image-exchange with other institutions. And that is certainly the appropriate strategy—image exchange promises to revolutionize the way institutions process checks and provide significant benefits in the form of costs savings and streamlined processes. But if chosen carefully, the image technology can do much more than effect image exchanges between institutions.

In fact, the best of the new image-technology systems are envisioned as eventually becoming complete capture systems. In the near future, it's easy to imagine these software products will be handling not only remote capture tasks, but "directing" internal check-processing systems, driving sorters, and managing the high-volume demands of local capture. The ultimate objective of these new systems is to give financial institutions the ability to accept deposits from anywhere and send the transit work anywhere.

As the financial services industry enters the Check 21 era, many executives are looking at their investments in image technology, weighing them against the benefits of image exchange, and asking themselves, "Is that all there is?" The good news is that new image technology brings with it a myriad of possibilities for the simplification and streamlining of processes--both those that take place within an institution, and those that take place with correspondent banks and corporate customers.

Everything Hinges on High-Quality Images

Every slice of added value begins with a high-quality image. The most useful and versatile of the image systems now on the market perform stringent image quality analysis on every image file that is received by a financial institution. That's fundamental—poor images just aren't useful. Well-designed image-software products also include a full image replacement document (IRD) creation and control component. These IRDs, once created from quality images received, can be used by other applications to create advice and charge-back IRDs as well as corporate "imitation" IRDs.

The remote capture of check images at sites within an institution's own organization offers significant opportunities for new economic efficiencies and geographic expansion. The new image technology offerings are easy to distribute, making them ideal for use at remote branches and ATMs where the costs of transporting paper checks back to a central office may have previously presented problems. In some cases, image technology could even make it feasible for a financial institution to open a branch or to place an ATM in locations that would have been cost-prohibitive before.

Many institutions already deal with correspondent banks, and internal or external lockbox processors that are image-enabled. Typically, however, even though images have been captured, this work is packaged into deposits, shipped to the institution's processing center, then recaptured for posting and distribution. It's hard to describe this process as anything but redundant and inefficient. With good image technology at work, it'll be possible to process large batches of this kind of work electronically, rather than re-running it through a sorter and having to deal with all the problems created therein.

In fact, all such deposits could well be made electronically. Both correspondent bank "mixed" cash letters and lockbox proof of deposit (POD) work could be transmitted electronically and processed much like "on-us" cash letters. Based on the sort patterns decision, this work would then be posted, and transit items cleared, through image exchange or IRDs.

One of the ways the new image technology removes barriers, opens new markets and unleashes new revenue streams is through the use of image capture at corporate sites. Financial institutions can use it to compete more effectively for new corporate customers and to offer new products to existing ones. Because these software products can be deployed easily to a corporation and its network of stores (no matter how far flung), all geographic boundaries are effectively removed from the reception of their deposits.

When an institution deploys one of the new image systems, image deposits from its corporate customers can be received and processed electronically, just like incoming cash letters.

Consolidating Deposits

A typical corporation, particularly one in the retail arena, may operate hundreds of stores across the country, and it may maintain deposit relationships with many institutions. The consolidation of all store deposits to a single financial institution would significantly reduce deposit fees for such a corporation and would bring a significant influx of revenue.

This scenario is truly a win/win situation for both the institution and its corporate customers. All deposits are made to that single institution, so that cash reporting is available throughout the day. Because funds will be cleared via image exchange or remote IRD processing, most will be cleared earlier than before.

The financial institution won't have to run the deposits through sorters, so corporate customers can feel comfortable making the image deposits later in the day. Because returns will be bounced back more quickly, and because customers already will have possession of check images, they will have faster access to returns, and they can start their collection process earlier. In addition, because paper checks will no longer have to be transported from the store to the institution, image technology solutions may reduce the need for costly courier runs in the middle of the day.

Clearly, image-technology products can provide significant benefits to corporate customers while they drive additional revenue to the financial institution. But beyond that, institutions can realize significant savings in the processing of deposit work.

Image technology helps ensure that corporate customers make only in-balance deposits with high-quality images. That means institutions can eliminate the capture and balancing processes that traditionally have been so time-consuming for corporate deposits. After virtual capture and image reject correction, deposits can be posted and images sent to the bank's archive for immediate use.

More than Meets the Eye

Check image technology is much more than a means of implementing image exchange. By viewing image technology as a multi-faceted tool (and so choosing the technology they deploy accordingly), institutions can get a handle on the untapped power that will be engendered by Check 21and to exploit it to its full potential.

Yes, image exchange has received most of the attention and hype lately. But forward-looking financial institutions know that image exchange is really just the first phase in the movement to a new financial transaction architecture—an architecture based on the total truncation of paper checks within and between institutions as well as between institutions and their customers.

As check volumes in the United States continue to trend downward, the considerable infrastructure financial institutions have built to process checks no longer is operating at capacity, which drives unit costs up. The new image technology can help reverse that trend. It will streamline and accelerate processes while it facilitates new forms of revenue generation in virtually every area of the financial institution. Kirk Pezdirtz is senior product marketing manager for VECTORsgi. Contact him at Karl.Pezdirtz@VECTORsgi.com. This article first appeared on The Point for Credit Union Research and Advice website at www. thepoint.cuna.org and is reprinted with permission.