Who’s Behind Who?
BY ALAN CHOW
A brief travelogue of what’s possible with newer processing systems, government-mandated initiatives and more flexible regulation.
Innovative banking technologies that are not yet implemented in the U.S. but are operating or being implemented in other parts of the world include real-time check settlement, advanced functionality ATMs, automatic signature verification and envelope-less, image-based deposits.
As much as the U.S. financial services industry can boast of a history of innovations, we can still learn much from our non-U.S. counterparts. In today’s world, innovations are taking place in some of the most unlikely places — or at least places we in the United States do not often think of as hotbeds of innovation.
While it’s true that regulatory regimes in some of these overseas markets allow for greater flexibility than is found in the U.S., some of these examples can be applied here, with the proper business case analysis.
Each example below is unique in its own way but, in general, the goals of the overseas banks are similar to those in the U.S. They wish to retain their market share, reduce risk and provide better customer service. Through these technological implementations they have been successful in customer service goals with no added risk and, in some cases, reduced risk.
Check Clearing in Minutes
In the Middle East, payment systems are evolving due to many pressures. As in China, for example, the Middle East has recently experienced an influx of foreign banks that are competing with domestic institutions for high-value customers.
There’s also a governmental impetus deriving from the need to modernize payment systems in order to maintain foreign investment. Since many of the region’s banks are of recent vintage and have little investment in large legacy systems, they are able to adopt the latest techology under government mandate.
The kingdom of Saudi Arabia provides a good example of these forces in action. The Saudis have already implemented a real-time gross settlement system and have now begun the largest check truncation project in the Gulf region. Initiated by the Saudi Arabia Monetary Agency (SAMA), this ambitious project is expected to be completed by the end of this year.
At that point, all banks wanting to participate in express clearing in the kingdom will be required to capture the financial data and image of checks deposited at a branch with electronic clearance to the paying bank for authorization and payment. The clearing cycle, traditionally measured in days in most other parts of the world, will now be measured in minutes in Saudi Arabia. In fact, check clearing and processing will be immediately communicated back through the SAMA electronic clearing system to the depositing bank within 30 minutes.
The passage of Check 21 legislation in the U.S. opened the door to similar clearing opportunities, but U.S. banks are not yet as far along the adoption curve to make near-immediate clearing a reality. Much of this relative tardiness is driven by legacy processing systems and perhaps a more conservative approach to technology adoption. Yet it is also worth considering how and why SAMA was able to move forward so quickly with an entirely new electronic clearing system.
SAMA clearly recognized the benefits of a faster clearing cycle, as well as additional customer service advantages that could be attained through the use of imaging by all the Saudi Arabian banks. The agency also had the advantage of being able to influence legislation that made an image the equivalent of a paper document. Finally, SAMA is the only clearing authority in the country and is able to enforce an image-based express clearing cycle of 30 minutes. Only image-enabled banks are able to participate.
37 Transactions on an ATM
In the U.S., we generally use the automated teller machine (ATM) for five standard transactions: withdrawal, deposit, account transfer, balance inquiry and, on occasion, statement printing. That transaction set has remained fairly constant since the birth of the ATM channel some 30 years ago. In other nations, however, the ATM is a true self-service fulfillment device that helps deliver a much broader transaction set.
In Australia, for example, Bank of Queensland has transitioned its ATMs from an OS/2 platform to a Windows-based system that enables the bank to deliver marketing messages. Cardholders from competing banks, for example, can be offered an introductory low interest rate on a new Bank of Queensland credit card. While U.S. banks are still experimenting with such programs, Bank of Queensland has deployed this functionality since 2004.
In Singapore, meanwhile, ATMs enable more than 35 different transaction types! Enter any major street ATM atrium or bank branch and you will likely face a line of ATMs offering a variety of transactions. To avoid interfering with the speed of the various transaction sets, these ATMs will be designated specifically for certain functions; some will offer traditional withdrawal or deposit, for example, while others will provide transactions not yet even contemplated in the U.S.
For example, if you want to purchase a car in Singapore, you must enter a lottery process that enables you to bid on the car — and you can submit your bid only through an ATM. You can also renew your driver’s license at the ATM, add time to your mobile phone or even purchase stock. Overseas Chinese Banking Corporation (OCBC) used the ATM channel exclusively to sell shares for an initial public offering (IPO) by telecom provider Singtel. It was the biggest IPO in the history of the Singapore Stock Exchange. Stocks and bonds have been sold on ATMs in Singapore since the mid-1990s.
While Securities and Exchange Commission rules may prevent such transactions in the U.S., the Singaporean experience demonstrates that ATM functionality can extend far beyond the five basic transactions we’re familiar with. The U.S. has more than 1,300 ATMs per 1 million people, the world’s highest density. That’s a vast network of self-service devices to be tapped.
Signatures Automatically Verified
Fraud prevention is another area in which overseas banks are deploying innovative technologies. Consider the automatic signature verification system installed by Union National Bank (UNB), headquartered in Abu Dhabi in the United Arab Emirates (UAE).
While the UAE does not experience the same volume of checks as the United States, average check values are much higher, which generates greater risk from forgery in the check processing stream. Standard banking procedures in the UAE include physical examination and signature comparison of 100% of the checks transacted.
The UNB, one of the leading banks in the UAE, is implementing a program to reduce this risk by becoming the first bank in the Gulf region to use automatic signature verification. Previously, UNB staff needed to visually compare every check signature to a scanned signature card in their database. The new system will automatically compare the signature on the check image to the signature in this database. Based on pre-determined tolerances and thresholds, exceptions will be reported immediately to UNB researchers for investigation.
The verification system analyzes two different aspects of an individual’s signature — the specific features of the static image and the specific features of the process of signing, i.e., the dynamic nature of the signature. The first type of application looks at a two-dimensional static image resulting from the action of signing. The second tracks motions during the process of signing.
U.S. financial institutions can take advantage of this image-based process despite the large number of checks written and processed domestically. In many areas outside of the U.S., it is the banks’ responsibility to assure that the signature on the check is valid. The U.S. has relied on the customer review process to ensure the validity of checks.
However, with the reality of identity theft and some very recent announcements that consumers will no longer be held responsible for the losses sustained as a result of identity theft, signature verification would be a natural extension to the process of assuring the validity of transactions. The technology has advanced and is scalable to process volume.
Image-based Deposit-taking
When it comes to image-based, self-service deposit adoption, U.S. financial institutions are just now rolling out their systems. Meanwhile, countries such as the UAE, Kuwait, Saudi Arabia and Egypt are already leading the world in the deployment of automated deposit technology for the ATM. These nations have well over 600 image-accepting deposit units up and running, enabling customers to deposit cash or checks directly into the ATM without using envelopes.
While this technology can be added to existing Windows-based ATMs, Dubai Islamic Bank in the UAE is also deploying ATMs designed specifically as deposit-taking terminals. These units can be integrated as part of an end-
to-end check processing solution any place where full, image-based check clearing is implemented.
This is an excellent example of ATM image-based technology performing in the marketplace. And it works whether the market is a high, low or even “no check” environment. In many countries outside of the U.S., checks are simply not used. Cash deposits to the ATM, rather than check deposits, are much more the norm. In fact, some Asian markets offer hourly interest, so it is common for consumers to deposit cash back into their accounts via the ATM at the end of the day.
Mr. Chow is vice president of NCR Corporation’s Payment & Imaging Group and one of the original Teradata® database software engineers who pioneered the development of the data warehouse industry.