Taking a Broom to Paper Documents

BY CHRIS COSTANZO

Faced with a cascade of information to transmit and store, financial institutions are seeking a solution in document management.

| SYNOPSIS | Banking is an information business, and banks are fairly drowning in data. Increased compliance and regulatory burdens only add to the paper jam. Past efforts to confront the problem have largely focused on increasing storage capacity so banks could save even more paper. But a growing number of institutions are using digital and imaging solutions, often within an enterprise?wide framework, to reduce the paper burden and streamline the receipt and transmittal of information.

Like a scene from Disney's "The Sorcerer's Apprentice," where an errant magic trick soon has the young wizard-in-training awash in water, the U.S. banking industry is flooded with paper. And with ever increasing compliance and regulatory burdens, the tide keeps rising.

Related charts Making a Difference with Document Management

No wonder, then, that financial institutions are increasingly looking at "document management" for rescue. This term is used broadly for digitizing document flows in and out of the organization for efficient storage and retrieval. "Whether driven by the necessity to streamline core processes such as lending and account opening, to improve the quality of customer interactions, or to fulfill compliance mandates, document management solutions are critical for the optimal functioning of a bank," Celent LLC Senior Analyst Madhavi Mantha wrote in a recent report.

While solutions in recent years tended to be limited to specific departments involving small numbers of people performing centralized, back-office functions, now they are rapidly morphing into enterprise-wide installations that cut across departments and encompass enormous numbers of people.

Clearly there is value to getting rid of paper. Being able to eliminate file storage rooms is only the beginning. Customer service also benefits because answers to inquiries do not lie deep within paper files; they can be easily called up through imaged documents. Efficiencies are gained because workers no longer have to file, stack, route or track paper, allowing institutions to either eliminate positions or take on greater workloads.

But there are some big challenges as well. Institutions often rush into implementing a solution before they've sufficiently analyzed workflows or identified their goals, causing their returns on investment to suffer. And the tactile nature of paper counts for a lot. Workers tend to favor the untidy messes of paper over images on a PC screen because that is what they know.

Banks nevertheless are looking beyond these challenges to focus on the obvious benefits of document management. Recent implementations of this technology are broader and bolder than before, and may only be the beginning of what is to come.

Workflow-based Routing

With the volume of corporate information growing by 50% annually, according to the Stamford, Conn.-based research firm Gartner, companies almost have no choice but to devise a strategy to manage it all. In a 2005 survey of 101 banks and insurance companies by Silver Spring, Md.-based Enterprise Content Management Association?also known as AIIM?68% of respondents said the increasing volume of content in their organizations had caused them to make changes during the previous 12 months in the way they handle documents. Growing volume was the biggest driver, followed by the Sarbanes-Oxley Act of 2002, identified by 51%.

The industry mostly is in pursuit of improved efficiency, with 71% of respondents citing that as the top goal out of 10 choices. The second most popular aim was to reduce costs (49%), and then meet compliance requirements (46%).

AIIM President John Mancini says he expects compliance will be-come an even more important driver because of amendments to the Federal Rules of Civil Procedure regarding a company's duty to preserve and produce electronically stored information in the face of litigation, which took effect in December 2006.

But banks have to be careful not to push into implementing document management technology before they have adequately assessed their business goals and the specific investments required to reach them. AIIM's survey found that 54% of scanning and capture implementations had met expectations but 10% fell short. "Paybacks haven't worked because they've rushed that process," Mancini says.

As they gain more experience, companies are evolving beyond early-stage installations in which they did little more than "store and hoard" documents in volumes of up to tens of billions, according to Alan Horton-Bentley, the director of industry marketing for financial services at Costa Mesa, Calif.-based FileNet Corp., which was acquired by Armonk, N.Y.-based IBM Corp. last October. "In the old days, you scanned documents and put them on a disk," he says. "Records management now has become intelligent versus being a utility."

The evolution from back-end storage to workflow-based routing can be seen at Flagstar Bancorp Inc., whose first foray into document management in 1996 was a classic utility application. Since then, the $51-billion-asset bank, based in Troy, Mich., has aggressively implemented the technology, gaining recognition along the way as an extremely efficient paperless mortgage processor.

Flagstar started out scanning mortgage documents on the backend once deals had closed, hanging onto them strictly for retention purposes. Three years later, it upped the ante by implementing workflow systems that actually removed paper from the underwriting process.

"It's not a tough thing from a lender perspective to scan and retain documents," says Steven Brooks, executive vice president, mortgage operations. "It takes a lot more effort to figure out how to route files around."

Flagstar's paperless file system handles both the data and images that make up a mortgage loan package. Through integration with all the standard loan origination systems, brokers electronically transmit data associated with a mortgage application. Brokers then access Flagstar's Web site to find out the verdict of the automated underwriting system and review the requests for additional documentation, such as W-2s, payment stubs or bank statements.

Brokers either fax in the requested documents or they upload scanned images of them. Either way, the imaged documents get indexed and routed through Flagstar's workflow system. An automated indexing system, which examines and learns from thousands of documents every day, handles about 90% of the traffic. The rest get routed to a team of people who do nothing else but get them into the system.

Flagstar's underwriters then use dual screens to validate the datacited on the applications against the supporting documents. The goal is to more quickly identify and correct issues upfront. "We feel customers shouldn't go to the closing table and have any problems," Brooks says.

Flagstar is continually enhancing and expanding the system. A paperless file manager added in 2003 enables outside brokers and Flagstar's underwriters to view the same screens. After submitting their documents, brokers can simply click the refresh button to confirm receipt by Flagstar's system, eliminating the many time-consuming phone calls that used to be required. Flagstar is now turning its attention to the closing side of the process and expects that next year it will be able to begin closing loans electronically.

Brooks did not provide specific return-on-investment information, but noted that payback flows from many areas. Flagstar has cut its number of processing centers from 10 to two, and redeployed employees that used to work in long-gone fax rooms and file rooms routing packages around the organization. At one time, the company had an employee who did nothing but handle Illinois faxes, Brooks says. And with service becoming more efficient, consistent and timely, customer feedback has been "extremely positive," he adds.

Pittsburgh-based PNC Financial Services Group experienced a similar customer service payoff when it started imaging receivables in its wholesale lockbox operation a few years ago. The bank images and indexes checks and invoices as soon as they come in, which means it no longer has to gather up the original documents, put them in order and return them to clients. "We've gotten out of the paper-return business," says Senior Vice President Bert Sciulli. In return for its $20 million capital investment, PNC gained efficiency and happier customers, Sciulli says.

A metric known as the "cash application rate" is used by corporate treasury departments to measure the volume of payments that can be processed without human intervention. According to Sciulli, PNC has noted improvements in cash application rates of 10% to 20%. "The initial benefit was that there was no paper back," he says. "But the bigger benefit has been delivering data and information to clients in a way that makes their operations more efficient."

Shared Services Approach

The shift from back-office storage utility to front-office workflow organizer is only one way document management is evolving. Institutions also are recognizing the value of building an overall content management infrastructure that many business units can use, rather than having each one build their own on a one-off basis.

With a shared services approach, the same scanned image can be made available to loan processors, compliance officers or branch managers, helping to break down the separate silos of information that have long characterized banking. "Having true integration and the ability to share data squeezes tremendous costs out," says Ivan Fernandez, marketing manager at Hopkinton, Mass.-based EMC Corp.

If the concept sounds similar to a data warehouse, that's because it is. But rather than just enabling access to transactional data, a shared document management system stores all the imaged forms, e-mails and other unstructured data, even phone calls, associated with customer records. Captured once, the same image can be accessed and used many times by different groups throughout the bank.

Chicago-based LaSalle Bank is moving to a shared services document management architecture after years of installing point-to-point solutions in individual business units. The $71-billion-asset North American arm of Netherlands-based ABN Amro found it was fielding similar requests from different business units looking to solve the same problem, says Michael Brophy, first vice president, enterprise content management. "It's much more cost-effective for us to do this once versus several times," he says.

LaSalle recently went live with its first application on the enterprise system, which is aimed at improving Sarbanes-Oxley compliance. Previously, users accessed general ledger spreadsheets through shared drives that did not offer any recordkeeping functions. The new shared services document repository, besides enabling broad access, offers features such as version control, audit trails, automated approval life cycles and greater security.

In two years, Brophy expects to have a large number of shared services applications across the globe, while having prevented the formation of additional one-off systems. High on the list for 2007 is the corporate tax group, which has few people but a lot of paper and probably would not have been able to justify installing its own system, Brophy explains.

Charlotte-based Wachovia Corp. already has achieved some of the benefits LaSalle is seeking. The $700-billion-asset bank logged savings of $2.3 million on a $1.4 million investment within two years by creating a common link to a number of disparate image databases around the bank, eliminating the cost it would have incurred to build point-to-point solutions between end-user groups and the document stores they needed to access.

Creation of the access layer was spurred by the merger of Wachovia and First Union Corp. in 2001 and has since spread to nearly every division of the bank, says Kay Harris, senior vice president and director of workflow image and integration technology. During the merger, the bank was confronted with the prospect of converting all the images held by one bank to the other bank's warehouses?an expensive proposition, Harris says. Instead, it built what it calls its content access solution and ended up winning AIIM's Best Practices award in the banking and financial services industry in 2005.

"It's all about enabling ease of access to the content," Harris says.

Looking forward, Harris says she would like to improve the system by automatically presenting to users all the data related to a particular customer, no matter where it resides, versus the current method, which requires end-users to define which databases to look into in order to retrieve information.

Taking Away the Printers-Eldon

Though the benefits of wringing out paper appear obvious, employees and customers often resist such attempts. So any shift to paperless processing likely will consist of a full-out campaign to convince end users of its worthiness. "It's a huge culture change," says Brooks of Flagstar. "You need top-down support for it."

He recalled that underwriters charged with verifying application data on one screen against corroborating data from imaged documents on another initially printed the documents out. "The joke was that we never had so much paper as when we went paperless," he says. The solution? Brooks took away the underwriters' printers.

Flagstar engaged in behavior modification with outside brokers as well. When faxed appraisals were found to have quality issues, the bank encouraged brokers to upload them by assigning electronically transmitted documents higher priority than faxed ones. "We forced them to use the new processes," Brooks explains.

Customers may need convincing too. At PNC, one of the biggest chal-lenges of introducing imaging to its lockbox business was getting customers to let go of paper. The bank countered by ensuring electronic documents were as high quality as paper ones, says Sciulli. For that reason all images are in full color so even handwritten notations in yellow highlighter can be viewed. Even more pushback came from PNC's own sales force. "We had to do a lot of explaining," Sciulli says.

Though the early stages of the tran-sition may be difficult, it doesn't take long for users to buy into the benefits of imaging. Brooks says it was "shocking" how willingly brokers made the transition to uploading electronic appraisals. Within 90 days, appraisal processing was paperless and complaints during that time were minimal, Brooks says. Sciulli notes that 95% of PNC's 6,000 accounts nationwide do not receive any paper back, even though the bank makes that option available.

Document management systems may require a multi-million investment depending on the size of the installation, a fact that ensures a measured progression into institutions. But it is likely that its many benefits eventually will make it as natural a part of banking as e-mail and ATMs are today. And paper documents might someday disappear--as if by sorcerer's magic.