When some technologies hit the scene, they take off like a shot. Other technologies build momentum slowly like a roller coaster, bursting into motion after their functionality reaches a peak. For remote deposit capture -- using devices to create digital images of checks -- the adoption curve has climbed steadily, but only now is banks' use of the technology about to explode. In fact, a report by Boston-based Aite Group forecasts that the number of U.S. banks offering remote deposit capture will grow by 1,000 percent by 2009.
Although the ability to create check images has been around for a number of years, it was not until Check 21 became law in October 2004 that the technology gained some momentum. Still, less than 100 banks offer remote deposit capture (RDC) today, according to Aite Group. However, that number will jump to more than 500 by 2008, the research company suggests.
"Like any new payment instrument, [RDC] is at low levels of penetration right now," relates Andrew Dresner, director, retail financial services, at New York-based Mercer Oliver Wyman. "But banks are seeing that their customers like it. Those banks that are being aggressive with the technology are seeing a strong uptake in customers adopting [RDC]." >>
Bankers certainly are upbeat about the technology. "The traction is definitely there," says Tony Gandolfo, a VP with The Bank of New York ($102.1 billion in assets) who heads the check and image-based deposits and disbursements product management group. "Last year, many of our customers were still assessing image deposit solutions, but during the first quarter of 2006, folks came out buying. This is becoming a mainstream product offering."
According to Debra Sciano, VP and senior product manager with Cleveland-based KeyBank ($93 billion in assets), RDC already has taken off. "There are a lot of instances where the product practically sells itself," she says. "It has proven itself in its value to customers almost immediately."
"Every bank seems to be going after [RDC] because of the immense value -- you're in your customers' back offices all the time and you can get more information from the deposits than you used to," relates Danny Peltz, EVP, wholesale Internet and treasury solutions, with San Francisco-based Wells Fargo ($482 billion in assets). "There's no reason not to do this."
And perhaps Peltz is right. Check 21 more or less opened the floodgates for financial institutions' efforts in the check imaging area. As BofNY's Gandolfo says, "Check 21 was the catalyst for adoption of remote deposit capture." Naturally, some banks were more eager to embrace it than others.
According to Danne Buchanan, CEO of Salt Lake City-based NetDeposit, a provider of remote capture and routing technology, in addition to the early adopters who "viewed remote deposit capture as a strategic weapon," there were those who adopted the technology from a defensive standpoint. They did not really believe in the product as something to increase market share, but as something to help them keep up with the Joneses, he asserts. "It's all in how you perceive the product," Buchanan remarks. "If you see it as something that can expand relationships, there is a huge opportunity. You'll have balances on your deposit sheet you didn't have before; you'll have new credit and investment opportunities. This is absolutely a product you can move into your customer base for stickiness and cross-selling. You're also streamlining your back office [by eliminating much of the paper processing]."
In spite of these obvious benefits, some have a more tempered view of RDC's revenue-generating potential. "Right now, the efficiency savings you get are offset by having to generate substitute checks," explains Craig Vaream, VP and senior product manager of domestic check deposits with New York-based JPMorgan Chase ($1.2 trillion in assets). "But our branches [and some of our clients] are using [check] scanners. So we thoroughly believe in this technology. The key to unlocking all the benefits of this technology will be when the industry adopts image exchange on a large-scale basis. Until then, the industry will not be at optimized efficiency."
Richard Winston, a senior executive with Accenture (Chicago), concurs. In fact, he says he thinks of RDC technology as somewhat of a revenue-neutral investment in some regards. "You're using it as a technology substitute for a lockbox," Winston opines. "It's a substitute technology and a convenience. You'll keep check volumes out of the bank's back office and reduce activity at branch teller stations. [RDC] is another enabler of getting checks out of the system."
Capturing Market Share
"If you're talking about a big bank that's rolling out [RDC] to its existing customers in its existing footprint, then saying it's revenue-neutral is an accurate statement," responds Mercer Oliver Wyman's Dresner. "You need a help desk, you need to deploy the equipment -- add all this up and it's revenue-neutral." However, there is money to be made, he stresses, if a bank goes after customers outside its footprint.
And that is just the course of action many banks are taking. According to Wells Fargo's Peltz, "When you talk about [RDC] as taking checks from one channel and moving them to another, then it's neutral. But in terms of my being able to create new market share, then it's definitely accretive to revenue. You're offering new services to existing customers and those outside your footprint."
Memphis-based First Tennessee Bank ($36.6 billion in total assets) was an early adopter of RDC. And it certainly is making money from the offering, claims SVP of treasury management services Taylor Vaughan. "We're making a profit because of monthly and per-item fees," he explains. "[RDC] is an important part of our strategy because we feel that we can sell our value proposition outside the market where we've already been successful. We have existing customers who are moving all their banking relationships to us. And we're also gaining relationships beyond our footprint." In fact, Vaughan says the growth rate for RDC adoption outside First Tennessee's footprint has been brisk.
Dave Youngerman, president of check capture technology provider Panini (Dayton, Ohio), goes as far as to say merger-and-acquisition activity among banks will decline because of RDC and its ability to create new client relationships. "Those banks that do this first will attain the asset growth they need and they won't have to grow through mergers," he explains.