Remote Deposit Capture An Overview of how Technology and Legislation changed core banking John M. Curtis, AAP/NCP Vice President and Director Education and Communications Western Payments Alliance September 25, 2013
Agenda What is RDC? How did we get here and why do we care? Benefits Types of Capture How it Works Processing Software Solutions Features Risk Customer Education Marketing & Implementation 2
What is Remote Deposit Capture? What RDC is: Ability to take a physical check (source document) that can be deposited at a financial institution and capture it at a time and place of your choosing Capture Devices: Scanner Fax Machine Mobile phone What s next? 3
How did we get here? Enabled by Regulation CC Subpart D: Check Clearing for the 21 st Century Check 21 States that a Substitute Check is as good as the original in a court of law. Does not specifically address RDC Allows for technology to be used in the deposit of check images Certain standards are defined related to Substitute Checks / Image Replacement Documents (IRDs) 4
Why do we Care? I thought checks would be extinct by now? Think again! 2010 Federal Reserve Payments Study Triennial study Over 24 Billion checks processed in 2009 Checks equal 22% of non-cash payments Only a 7.2% decline in check volume from 2006 2009 Full study at www.frbservices.org 5
Why do we care? Source: 2010 Federal Reserve Payments Study 6
Financial Institutions Benefits Breaks down Geographic Barriers Maintains Competitive Advantage Reduces Branch Traffic Allows Better Control over Float Lowers Per-Item Handling Costs Increases Fee Income 7
Benefits Customers / Members / Consumers CONVIENIENCE!!! Eliminates Costly Courier Services Reduces other Transportation Costs Time, Fuel, Insurance, Lost Productivity Extends Deposit Time Captures Essential Information 8
Types of Capture Branch / Teller Capture Branch Scanner on back counter CSRs scan checks in batches Batches sent to central processing area Teller May be vendor Items scanned at customer station Items sent directly to central processing area 9
Types of Capture Branch / Teller Capture May integrate to risk software / database Check for duplicate deposited items Check for known bad items Within Financial Institution Within network when going through exchange Check for Stop Pays Reduces risk and stops deposit at CSR station 10
Corporate Capture Types of Capture Small to Large Business Single Feed and Multi-Feed Scanners Ability to read Payment Coupons Capture of Remittance Data Ability to Export to A/R systems Small (low volume) businesses may use mobile capture Some corporates used in-house software solutions Transmit Image File directly to FI or Clearing Network 11
Consumer Capture ATM Flatbed Scanners Mobile Devices Types of Capture By use of an app Must be Smart Phone with Camera Also good for low volume businesses Saves FI cost of scanner deployment 12
ATM Capture Types of Capture No envelope required Scans check instantly Determines deposit amount May print image on receipt May integrate with fraud software solutions / databases 13
How does it work? Picture is taken of the check Optical Character Recognition (OCR) reads information Information populates a data file Usually with multiple items Image integrity is determined IQA Image Quality Analysis IUA Image Usability Analysis 14
Amount is verified How does it work? CAR Character Amount Recognition LAR Legal Amount Recognition Items may be separated for separate processing On-Us ACH Other Least Cost Routing options Images and Data collected into a file X9.37/X9.100 (Standards for image exchange file) 15
How does it work? Balancing procedures are completed File is transmitted Captured items may be processed using multiple channels ACH (Automated Clearing House) ACH Operators (Fed / EPN / Direct Exchange) Image Exchange Direct to Fed Other clearinghouses Clearing Networks Direct Exchange between Banks 16
ACH Processing Only MICR Data Does not transmit images Next Day Settlement Restrictions No Auxiliary On-Us Field Under $25,000 RCK - $2,500 Ensure Originators have Authorization Certain checks may not be converted Government, Money Orders, Travelers Checks, HELOC, etc. Image Exchange has no restrictions 17
Types of ACH Items ARC Processing Accounts Receivable Conversion BOC Back Office Conversion POP Point of Purchase RCK Represented Check 18
Output Files Processing ACH (NACHA) Formatted File Data only No image Business retains check/copy for two years as authorization RCK: Seven year retention Image (ANSI) Data and Images Image is part of file X9.37 / X9.100 19
Least Cost Routing Processing Decision Engine Where to send this item / batch of items Federal Reserve Clearing Network Endpoint Exchange / Viewpointe / Fiserv / SVPCO ACH Direct Bank to Bank Relationship May have reduced per-item fees (or none) Expedited Availability 20
Thick Client Software Solutions Computer Based Generally faster processing Images & Data remain on PC/Server IQA/IUA and CAR/LAR performed immediately Creates Image File File transmitted to bank May not integrate with risk solutions Requires downloads for software updates 21
Thin Client Software Solutions Web based (software in the cloud) Items sent to FI or ASP for IQA/IUA and CAR/LAR Images remain on bank server May have images on PC May integrate with risk solutions No software updates required Except scanner drivers Potential slower processing dependent on Internet speed 22
File Transmission Software Solutions Customer maintains software solution and scanners File created at customer site Transmitted directly to FI or Service Provider Requires testing of files prior to implementation Generally for larger corporates 23
Software Solutions In-House Solutions Requires servers Costly implementation IT to perform software updates Application Service Provider (ASP / SAAS) Lower cost of implementation Software upgrades immediate Reduced staffing requirements In either case: Cost Benefit Analysis 24
Software Solutions ASP Pricing Considerations May charge: Implementation (per seat) Monthly Maintenance (per seat) Per Deposit / File / Transmission Per Item Consider Tiered or Enterprise Pricing Tiered Up to 100 seats Enterprise Unlimited seats 25
Software Solutions ASP vs. In-House Considerations Cost to Implement Shelf Life Anticipated Adoption Expected Volumes Ability to White Label Correspondent Bank reselling product 26
Code Line Changes Product Features Ability to change MICR Data Does software validate RTN? Integration with risk solutions Fix Amount / Forced Balancing May lead to an increase in adjustments Remittance Capture Captures data from payment coupons Export and post data to A/R systems 27
Product Features Multi-Account Deposits Good for large businesses Multi-Bank Deposits Good for bank holding corporations Maintain control over BOFD Online Reporting Integrated with Online Banking All Accounts Customers like this 28
Endorsements Product Features Physical vs. Virtual Missing may cause issues with returns To Frank or Not to Frank? Physical voiding Drawback: Check not eligible for re-deposit Advantage: Check not eligible for re-deposit 29
Product Features Risk Mitigation Solutions National Database Integration Early Warning Systems / TeleCheck Provides both Positive and Negative information Duplicate Item Detection Bad Account / Check Detection Risk Exposure Limits Anomalous Deposit Detection Ability to pull check images and review (revoke) deposit 30
What s the Risk? Risk Just like ACH Debit Origination Checks may be returned Nobody is looking at physical items Third Party Items Kiting Watermarks & other security features are not captured by RDC Checks may be deposited multiple times At your FI At other FIs Why is this a risk? 31
Risk Holder in Due Course Uniform Commercial Code; Article 3 Defines negotiable instruments He who holds the paper has right to the claim 32
Know Your Customer Risk How long in business / a customer? What is the nature of the business? Create policy on High Risk / Prohibited Businesses Review past statements for returned items How many times overdrawn? NSF / UCF Items Consider Credit Underwriting Based on exposure over time Public Reporting D&B, BBB, LexisNexis 33
Site Visit Risk Does the workstation have limited access? Is there a safe place for secure storage of checks? How will check destruction be handled? Spot checking Pull deposited items & check payee names, etc. Periodic review Review deposit history for trends Software can perform this using analytics 34
System Access Risk Layered Security Strong Passwords Who cares? Deposit to my account all you want! GLBA Protection of non-public personal information Customers have data in computers and on checks Name Address Account Number Specimen of Signature 35
Customer Education Why Educate Customers? They re performing your item processing You are liable What they need to know: Check safeguarding and destruction Shred, burn, pulverize, etc. System security Avoiding duplicate deposits May not deposit third-party items Liability for Data Breach 36
Ineligible Items Customer Education Stamps Food Stamps Coupons Credit Card Drafts Warrants Currency Foreign Items 37
Customer Education Other Considerations Items requiring two-signatures Post dated checks Stale dated checks Restricted Items Not valid over $XX.XX Payable upon completion of... Provide information in Deposit Confirmation Write Void or Deposited with date on face of check Place checks in a safe place Destroy after specified time period 38
Marketing Create a cost-benefit tool for business customers Deposit Frequency Courier Expenses Salary / Time Away from Business 39
Marketing Online Calculators / RemoteDepositCapture.com Bank Value Proposition Calculator http://www.remotedepositcapture.com/calculator/bank.aspx Business Value Proposition Calculator http://www.remotedepositcapture.com/calculator/business.aspx 40
Other Benefits Marketing Extended deposit deadline Expedited availability Convenience Consumers All about convenience Gen Y and beyond demand this Your competition has it Most with fee-free checking 41
Collateral Materials Marketing Tent cards at CSR stations Branch banners Statement stuffers Business brochures Social Media Facebook Twitter Promote it and let everyone know you have RDC! 42
Corporate Monthly Maintenance Per Deposit Per Item Less for on-us items? Pricing Returned Items Consider Account Analysis Consumer Mostly free Some charge the cost of a stamp 43
Agreement People rise to the level that s expected of them Set expectations Separate agreement or Part of Cash Management Terms & Conditions Or Consumer Account Disclosure Consider shopping for pre-made agreements Review thoroughly to address your needs Payments law firms are an excellent resource 44
Educate Staff Roll Out Relationship Managers CSRs Customer Service Website You will get tech calls Installation instructions Downloadable User Manual Scanner Drivers Apps FAQ Area Support Number 45
Questions? 46
Resources Western Payments Alliance www.wespay.org www.remotedepositcapture.com www.eccho.org Regulatory Resources Fed Operating Circular (OC-3) ECCHO Rules Regulation CC Regulation J Uniform Commercial Code Articles 3 and 4 47
About The Presenter John M. Curtis, AAP/NCP Vice President and Director - Education and Communications Western Payments Alliance - jcurtis@wespay.org - 415-373-1190 48