The industry has long been calling for the elimination of paper checks from the banking system. But while the majority of banks in the U.S. have embraced the idea of digitizing checks, there are still some community banks looking for the best way to comply with portions of the Check 21 legislation.
One area that still is in need of more automation at some small and midsize banks, according to experts, is Day Two processing, the processing of incoming and outgoing return items, or exceptions. For example, though Bremer Bank ($7.7 billion in assets) began using image technology for item processing in 2002 with the implementation of branch capture in 87 of its branches, it took the St. Paul-based institution until last year to become a fully image-enabled shop.
"Over time we have migrated to truncation of the transactions at the branch and relying on the image transmissions," explains Julie Berglund, Bremer's VP of payment systems. "In 2007 we moved to image cash letters for transit items. In 2008 we added image cash letters for incoming and outgoing return items and image in-clearings. This migration was all part of our payments road map and payments strategy to move from paper into a full image environment."
Bremer was able to take this next step with the help of Fidelity National Information Services (FIS). The Jacksonville, Fla.-based vendor had been providing the bank with Check 21-related technology since Bremer's initial foray into imaging in 2002. Through a partnership with Data Support Systems, FIS was able to offer Bremer and other FIS financial institution clients the TRIPS Day Two product suite for automating Day Two processing.
Since deploying TRIPS to process incoming and outgoing returns, Bremer has eliminated two full-time employees, decreased its processing costs and been able to offer additional customer notification methods, Berglund reports.
According to James Casale, SVP with FIS, the bank was already in good shape as far as Day One processing. "Bremer Bank was an early adopter of branch capture, so they were well positioned on the Day One side to capitalize on the benefits of remote capture combined with image exchange," he relates. "They had delayed the reengineering of their Day Two processes until they finalized their Day One image exchange strategy."
Bremer's Berglund says the decision to use the TRIPS solutions on an application service provider (ASP) basis was very much based on economics. "Bremer typically makes infrastructure and strategic decisions to host in-house or leverage an ASP environment based on the total cost of ownership [TCO] for the initiative, she explains. "Based on the TCO related to moving to an image environment, it was cost effective for Bremer to leverage the existing FIS relationship to move forward in an ASP solution."
Since the solution runs in an outsourced environment, the bank didn't need to change much in terms of its in-house technology. According to Berglund, the system runs in a Citrix environment and Bremer only needed to engineer the secure connections with the FIS system, along with testing and parameter setting.
Warming to Outsourcing Day Two Processing
FIS' Casale notes that while most banks have moved to outsourced Day One processing, community banks in particular traditionally have kept Day Two processing in-house. "These banks lacked automated processes to handle the decisioning of exceptions items and instead relied on trained back-office staff to render decisions on all items individually," he explains. "The banks were reluctant to outsource such staff-oriented functions because they required specialized knowledge of internal bank procedures or customer handling requirements."
The TRIPS services, as well as other Day Two processing automation solutions, however, allow banks to preset decision rules and can refer suspect items for additional human intervention and review using an image workflow, Casale says. "In many cases, items are processed with little to no human intervention," he adds.
According to Bremer's Berglund, more and more community banks are moving to full image capability, especially as the Federal Reserve closes local check processing offices. "My impression from conversations with other financial institutions is that most are moving to image as quickly as they can based on their infrastructure and technology," she says. "Every day there are financial institutions moving their items into the image flow due to the increased price of processing paper. The increase in the costs of processing paper will force late adopters to move forward with implementing image cash letter technology."