Remote Capture: A Way to Draw the Corporate Customer Closer

By Clint Swift

Check imaging at customer sites promises to strengthen the bond between some banks and their corporate clients, weakening or even breaking the link between others.

The prospects of pushing check imaging from the bank out to a customer's location has sparked the imagination of many financial institutions and their corporate clients. Instead of taking its checks to the branch each day, a customer scans them at its own accounts receivable or remittance processing site, then transmits the digital data directly to the bank and the payments system for clearing. Ready to go today, the process involves no significant technology hurdles and requires minimal infrastructure to be installed by the corporate customer (see sidebar).

Corporate customers are vitally interested in this ability to eliminate the need to physically transport checks to the local branch or lockbox site for deposit. They gain convenience and the opportunity to consolidate deposit accounts, increase availability and cash flow, reduce fees and management overhead and improve reporting. But the major impact is likely to be on financial institutions themselves. Bankers say corporate capture has profound implications for banks' operational efficiency, account acquisition and retention, cost reduction, revenue generation and risk management.

To begin with, there is the potential for processing efficiencies and savings, incremental fees from enhanced reporting on accounts and a quick partial payback on expensive check imaging investments. Then there are the marketing advantages. Corporate capture provides a channel into the corporate customer's treasury operations for cross-selling and up-selling. For aggressive banks, it leads to more treasury business, new customers and new deposits, new reporting products and heightened likelihood of customer retention. As proximity recedes as a driver of deposit relationships, banks that don't offer the technology may find a competitor using it to drive a wedge between them and their commercial customers.

Of course, some caution is appropriate. Consultants, operations supervisors and risk managers say achieving an expected return-on-investment will require institutions to be ready to manage the risk of fraud, processing errors, image quality and other potential problems at hundreds or even thousands of sites where they exert only limited control. Since the technology remains in its infancy, unanticipated problems could arise.

Even so, early reports suggest corporate capture does work and it's proving to be a win-win for both banks and their customers.

Opening the Floodgates

The Check Clearing for the 21st Century Act, or Check 21, which took effect last October, helped create the opportunity for remote capture by removing the legal requirement that an original paper check had to be presented to obtain payment. Instead, banks can now use digital images to transport check data from the bank of first deposit to the paying bank. If the paying bank can't process a check image, the image can be printed nearby on paper as a substitute check and deposited the same day.

"That just opened the floodgates for all these new front-end distributive capture strategies," says Jeff Vetterick, vice president, marketing, with Advanced Financial Solutions (AFS) in Oklahoma City. "Check 21 electronified the back end, allowing real value to be gained by doing distributive capture."

Some of the nation's most prominent banks quickly jumped at the opportunity. During the last quarter of 2004, corporate capture announcements were made by Bank of America Corp., Charlotte; Bank of New York Company Inc.; BB&T Corp., Winston-Salem (which created a subsidiary to lead the charge); First Horizon National Corp., Memphis; HSBC Bank USA, Buffalo; Mellon Financial Corp., Pittsburgh; NetBank Inc., Atlanta; J.P. Morgan Chase & Company, New York; Wachovia Corp., Charlotte and others. A month after Check 21's implementation date, banker interest and enthusiasm was so strong that corporate capture solutions providers' exhibits were among the most trafficked at BAI's Retail Delivery Conference & Expo in November 2004.

Banks can make a solid business case for corporate capture. They can use the product, for example, to wrest big-company accounts from banks that have only a limited relationship with a depositor. Such corporations, often with multiple locations that use local branches for deposits, are motivated to consolidate accounts to reduce deposit and sweeps fees and management requirements and to gain negotiating leverage over availability and other issues.

Consolidation has practical benefits, too. When funds are concentrated in a single account, it's much easier to generate reports that show corporate treasury staff the balances they manage. "If a customer has multiple locations, he will be able to see what each location sent in and get immediate availability of images and balances," says Sonja Kennedy, director of bank operations at NetBank. "Even if you go to a branch, you don't see that until the next day."

Jacob Heugly, vice president and sales manager for AnyTime Deposits, the remote capture offering of Zions Bank, says the product has a positive impact on the balance sheet because it helps generate more fees for products such as analyzed accounts. But, he adds, it has an even more profound effect on deposits, a key element in bank profitability.

Zions Bank has multiple clients in remote-capture production and an aggressive campaign to enroll more than 1,000 this year. "Every month we're signing up quite a few more, and we could have clients that are depositing over a billion dollars," Heugly says. "Those are huge volumes from national accounts and we're going to really start beefing up the sales function here."

Zions' customers share the payoff, Heugly adds. "We have seen an 8% to 42% increase in availability of funds for our clients," he says. "What maybe took them three days now takes only a day and a half to get the funds in their accounts."

Freedom from the constraints of geography also gives corporate capture a global reach. Bank of New York, Wachovia, Mellon and others have discussed publicly or announced plans to provide the service to foreign clients that today must physically transport dollar-denominated checks to the U.S. for payment.

One other benefit of corporate capture is that it provides banks a relatively quick payback on the millions they have spent on check imaging. And they can get that return without having to wait for their main check trading partners to get up to speed on image exchange, say bankers and solutions providers. Although it can be seen as essentially a front end to check processing systems, remote capture could speed the spread of image exchange. As banks receive more and more check deposits as images, they are likely to see an opportunity to reduce costs significantly by joining an image exchange network.

Corporate Candidates

Good candidates for remote capture services include companies that use bank concentration services, receive high-dollar-value checks or checks at non-payment locations, or that use Internet banks, according to Bob Hunt, a senior analyst at TowerGroup, Needham, Mass.

Indeed, NetBank, one of the nation's largest Web-based banks, was an early tester of remote capture, using an Alogent system. "We have no branches, so it's another way for customers to make deposits, and that's huge on the small business side," says Kennedy. "Small businesses tend to make a deposit, then pay invoices the next day. This eliminates mail float for them."

Among the types of businesses mentioned by bankers and solutions providers as being good prospects for corporate capture are property management firms, groceries, pharmacies, doctors' offices and retailers of all sorts. "This is an interesting business driven by two variables - check volume and check value," says Vijay Balakrishnan, executive vice president, marketing, at Alogent. "You have businesses with only a few checks but checks of high value that they need to get to the bank right away. And you have businesses with a lot of low-value checks."

The fact that corporate capture can be used by diverse businesses means that banks need to consider carefully whether they trust a customer to perform what traditionally have been back-room bank functions. Taylor Vaughan, senior vice president, treasury management services at First Horizon, compares the risk of remote capture to that of automated clearing house (ACH) payments. Since First Horizon already had customer review guidelines in place for ACH, it uses similar guidelines for remote capture, such as check volume and credit scores.

Royce Brown, president and COO of NetDeposit, says banks that are offering the product today generally are cash management banks. These banks are devising value-added products for customers' treasury departments, often with the active help of those customers. Brown says that NetDeposit's software will feed data back into a corporation's accounts receivables system and that the technology will evolve to offer unique functionality for certain types of businesses such as insurance, mortgage or broker/ dealer, including connections to accounts receivable systems and reporting.

Anthony Gandolfo, vice president, deposit services, Bank of New York, says his company focuses on integrating its remote capture application, based on software from Wausau Financial Services, with other image-enabled offerings such as online returns. "The customer deposits the item via remote capture and, if it gets returned, we send a same-day e-mail notification to them...as well as make the image of the return available online for review or other processing actions," he says.

Robert Merkle, marketing manager at big-bank item-processing software provider Conix Systems, Inc., Manchester Center, Vermont, believes that integration with customers' treasury management systems is crucial to retention. "You want to do user interfaces that segment the market, that integrate into their processes, because then it's almost impossible for anyone else to provide the level of service that the bank can," he says.

For banks, one major advantage of providing technology that operates in the back room of a depositor is strengthening the bonds with those customers. "The more solid the relationship, the more apt the commercial customer is to utilize other services provided by the bank," says Vetterick of AFS. "I think we can see greater penetration of positive pay, for example, when the bank has a direct connection to an operational clerical person in that depositor." In positive pay, a bank compares checks presented for payment against a database of checks issued by the customer.

Banks have a slightly different challenge - and opportunity - in offering remote capture to retailers. Retailers are different from other candidates for the product because cash often makes up a large proportion of their payments. In addition, for huge retailers such as a K-Mart, Wal-Mart or Target, depending on the value of checks they receive, it might be cost-prohibitive to place scanners in all locations and process items themselves.

But the same remote-capture technology that banks sell enables couriers to pick up checks as well as cash from retailers and capture the checks at cash vault sites. Previously, armored car companies had been able to handle the cash but had to pull the checks out and ferry them to the bank the customer identified. Now, couriers can extend their markets into areas where they had no banking relationship and serve customers there, making deposits wherever the customer wants. Partnering with a courier, the bank can offer customers a solution that includes cash as well as checks.

Brown says NetDeposit is starting a pilot with Richmond-based Brinks Inc. and has inquiries from several other armored car companies. Gandolfo says the strategic value of partnering with couriers to serve common customers has not been lost on Bank of New York, either.

Industry-wide Impact

Corporate capture is clearly good for some banks and their customers, but what's the impact on the industry overall?

One question is whether remote capture will pit big banks against small and even medium-size banks.

Cheryl Yavornitzki, vice president of retail delivery systems, at $1 billion-asset Fidelity Bank, Wichita, believes small banks may be at a disadvantage even if they offer the technology: "A national corporate treasurer from a grocery store chain told me that they're going to have three or four banking relationships, period. The bigger banks have investment capital and lines of credit that they offer these big companies and the companies are going to gravitate to where the rest of their business lies."

But Yavornitzki is also quick to point out that many small banks have proven more nimble than huge, deep-pocketed competitors when it comes to adopting and leveraging image technology. James Simon, vice president, operations, at $2.4 billion-asset InTrust Bank, also in Wichita, says his bank has been using remote capture in all 47 of its branches since 2000. Now he's installing a remote capture system from AFS with a pair of cattle feedlots that deposit a half-dozen six-figure checks daily.

Vetterick of AFS is emphatic about the opportunity for small banks. "With the right offering and the right set of partners, you could go out and win new corporate capture business all over the country because it's all virtual," he says.

For small banks, there's also a defensive aspect to corporate capture, according to TowerGroup's Hunt. "It's a matter of asking: ÔWhat value do I provide to this customer?' If all I'm doing is taking check deposits, I'm probably at high risk of losing the customer, even if I can offer remote capture. On the other hand," Hunt continues, "if I'm doing cash services or other support for them, I've got a good opportunity to retain that customer."

Banks may gain some retention advantage when they place their hardware and software on a corporate client's desktop, but bankers know better than to rely on that. They say that remote capture will help tie corporate customers to them because it is another effective service and because customers at multiple levels in an organization quickly grasp the benefits.

The problem is that any proprietary link based on technology alone may gradually dissolve. First Horizon's Vaughan says that standards will emerge that will enable customers to create an image file in a format they can then transmit to any bank in the country capable of handling the files. "Over time, it will become similar to ACH," he says. "If you can create an ACH file, you can pick the bank you want to send it to."

Moreover, as banks convince their customers that remote capture can be accomplished without a lot of expense, training or risk, high-volume customers may decide to withdraw their lockbox business from the bank and take it in-house. "Twenty years ago, we saw some companies decide to handle payroll themselves because the software enabled them to do so easily," Zions Bank's Heugly says. "We may see lockbox operations being handled more by businesses through using a tool such as this."

It is still much too early to say to what extent pushing the front end of check processing out into customer locations will change bank operations or impact revenue from commercial lines of business. But the early adopters are betting that the impact will be positive, and they are positioning themselves to harvest returns for the foreseeable future.

Questions or comments about this article? Post them at the Banking Strategies blog.

Mr. Swift is a freelance writer based in San Antonio, Texas.

Copyright © 2005 by Banking Strategies, published by BAI.

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