TRACEY SCALATA
‘Necessary’ step
Tom Houston, president of T. Houston Technology Group, describes community bankers’ foray into remote deposit capture – also known as merchant check capture – as David picking up a rock to swing at Goliath.
The new technology gives small banks a way to corral customers that otherwise might be beyond their reach, either because of the size and complexity of the account or because the client is located outside their geographical footprint, Houston said.
“This is the hottest technology that has come along since the bank account number was created,” Houston said. “This technology allows a small bank to compete with the big banks, leveling the playing field more than we have seen. This is the David and Goliath story all over again.”
After signing up for merchant check capture with a bank, businesses can eliminate routine but frequent trips to make check deposits. Using a scanner and special software, businesses can send checks to their bank electronically via image capturing. The process saves time for the business and breaks down distance barriers for banks.
“Take away the geographical borders that have always been there and it’s a whole new ball game,” Houston said.
Houston’s Jacinto City, Texas-based consulting firm has been teaming up with banks around the country to train them on merchant check capture. Houston said the approach is rapidly gaining more popularity at the community bank level.
According to Houston, businesses spend an average of between $200 and $500 per month in time and resources to physically deposit checks with their banks.
A growing number of smaller banks are investing in remote deposit capture technology.
“Competition is what is driving that. We tell bankers you a have a choice. You can be early, but you don’t want to be late,” Houston said.
Rockland Trust, a $3 billion bank with 52 branches in Massachusetts, was among the first to offer merchant check capture services in New England, having begun rolling out the product late last summer. At the time, even some of the region’s larger banks were not even offering remote deposit, giving the smaller bank some advantages. “I felt it was necessary to do,” said Tracey Scalata, senior vice president and cash management director of the Rockland-based bank. Today, the bank has 40 users of merchant check capture. Scalata said it is somewhat ironic that more than 60 percent of the users are close to a branch, since implementation was originally thought of as a way of attracting customers from outside the bank’s footprint. But even users close to branches find the service convenient, and the product offering has attracted some out-of-state business from as far away as Florida and Colorado.
According to Scalata, a wide variety of businesses have opted to sign up for remote deposit capture, ranging from a large regional property management firm to a small local landscaping company.
Scalata said she is not surprised other community banks are considering offering the service. “This is going to be the wave of the future,” she said. “To grow deposits you really have to stay on top of technology.”
Avon, Conn.-based COCC Inc., a developer and supporter of technology for financial institutions, gave a presentation on the topic at a recent technology conference sponsored by the Massachusetts Bankers Association. Just how much interest there is among local bankers was apparent when all the seats filled up and several more people stood in the back to listen.
“I did hear that it’s a fairly popular topic,” said David Floreen, senior vice president of government affairs and trust services for the MBA. “The value really comes first and foremost in simplifying life for your existing companies. It really is a customer benefit, and banks will be flocking to those types of services. Banks have a lot of pressure [to attract and retain customers]. It’s a very competitive marketplace, and companies have lots of choices as to where they do business.”
“There is a new interest in the product,” said Betsy Didan, document processing manager at COCC. “The first thing is looking at your customer and knowing who your customer is versus the cost of implementing this. Does this make sense for the customer?”
Didan said the concept is attracting strong interest from the smaller financial institutions because it could give them a competitive edge and allow them to compete for bigger business accounts. “It allows them to think a little differently,” she said. However, Didan warns that there are some concerns about the new technology.
Weighing the Risks
Banks must have great confidence in the business customers that use remote deposit since they are likely the only ones who will see the physical check. The customer also needs to be trustworthy enough not to attempt submitting a check more than once either by rescanning it or depositing it physically at a bank branch after it has already been scanned and deposited electronically. Although Didan said any such attempt would be spotted, it could create a messy – and time-consuming – situation.
Banks also need to consider how they would handle any technical problems with the machinery or software that could arise, Didan said. Another consideration is that banks offering merchant check capture tend to make the deposited funds available more quickly than if a check was brought in and deposited physically at a branch office. While remote deposit capture offers advantages, these and other potential difficulties mean offering the service may not be the best choice for every financial institution.
“If the right customer walks in with the right bank, that’s one thing, but I am not going to sell a bank up the river,” said Didan, adding that when COCC begins offering the product to banks in July she wants to make sure bankers know exactly what they are getting into. “The bank needs to think very carefully about it. It could hurt the banks if they don’t think this through,” she said.
Boston-based Celent, a research and advisory firm, has been working to provide financial institutions with an understanding of merchant check capture. Bob Meara, a senior analyst with Celent, said there are some safeguards in place to prevent fraudulent use of the technology such as a spray or stamp that will mark the check as having been scanned and electronically deposited. Meara said it is important to weigh the risks since banks in most cases also are responsible for the image quality of the checks. He said this stems from the federal Check 21 legislation that was passed in 2004.
While it’s important to know the risks, the benefits of remote deposit capture are garnering a lot of interest in the banking community.
“Merchant capture has captured everyone’s attention,” said Meara. He said banks are appropriately looking at this as a way to grow without adding branches or ATMs.
Meara said some bankers may question how valuable the new product will prove in the long run, since there seems to be a slow but inexorable move toward a cashless society and checks in general are becoming a less preferred form of payment. However, 80 percent of business-to-business transactions currently are conducted via check payments. “We are nowhere closer to a check-less society today than we were 10 years ago,” Meara said. “We are going to have checks in significant quantities over the next 10 to 15 years, easily.”
Meara said he does not believe merchant check capture will ever account for the majority of a bank’s deposits, but it could attract more business.
Jay Tuli, director of marketing and business development at Arlington-based Leader Bank, said that when bank executives realized remote capture technology was viable and available, they decided giving it a hard look was a necessity. “It is something we are seriously considering,” said Tuli. “It’s a pretty cool thing. The idea is that it actually makes a lot of business sense for a small bank like us that doesn’t have a lot of branches everywhere.”
For example, Leader does not have a physical presence in downtown Boston, but implementing remote capture could allow the bank to service businesses in the city, he said.
Tuli said many of banks now lend to businesses outside of their branch areas, and remote deposit capture will allow them to extend a wider array of services to strengthen those existing business relationships.
Although Tuli said some of the security issues remain a concern and will require the bank to do some more research and complete its due diligence before offering the service, he does believe merchant check capture will establish a firm position in the community banking world.
“I think it is an exciting technology that one day everyone will be using,” Tuli said. “This will be the next ATM.”
