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January 2005
Remote Check Image Capture - Business Case Behind the Marketing Opportunity
We believe that remote check image capture will be the norm in the
future. The challenge banks face today is deciding when to move. For
some banks remote image capture can be a great business opportunity -
one of those infrequent occasions to rewrite the competitive landscape
to your advantage. It is the kind of opportunity that justifies the
effort and risk.
Things have moved ahead in the last few months with large banks like
Bank of America, Bank of New York, Mellon, M&I and Wachovia
announcing pilots and/or the offering of a remote check image capture
service to their business customers. At this point the total number of
real business users is quite small, but the industry sense is that this
is the first area in which banks will offer a new Check 21 enabled
product. Makes us feel pretty good since that has been our position for
a number of years.
Some banking companies are offering a remote capture service to both
their own business customers, and to other banks who in turn offer it
to their customers. These include: Zions / Net Deposit, BB&T /
Creative Payment Solutions, First Horizon / First Deposit Plus, and
M&I / AFS Direct Merchant. One commonality of these offerings is
the use of a separate scanning device attached to a PC. One major
manufacturer is reported to be developing a low cost standalone device
for check imaging that avoids the potential problems of sharing a PC
with other applications.
Banks looking to remote capture for cost savings, rather than a
marketing opportunity, would be advise to monitor developments without
making any significant commitment at this time. However, offering
remote capture today can be cost justified, and we talk more about that
later in the article. In the short term, offering remote capture may
drive up the cost of check clearing because rather than being able to
forward images and associated data for collection, substitute paper
checks (IRDs) will need to be printed. As the industry moves to image
clearing these added costs will disappear.
In our view, banks that should consider a more aggressive approach to
remote image capture should have some of the following attributes in
all or some of the markets they serve or would like to serve:
• Want to grow business banking significantly;
• Have customers and prospects that are not adequately served by the existing branch network;
• Have cost of sales higher then peers and/or poorer customer retention rates;
• Have convenience oriented customers who would be
vulnerable to a remote capture offering from a competitor; and
• Want to expand geographically into new business environments.
Some types of institutions having the above attributes are Internet
banks, specialty banks with limited offices, banks with thin branch
coverage, and banks entering new urban areas where the ability to
expand is constrained by capital budget. It is not just an urban
phenomenon, rural banks can extend their competitive reach into locals
where a branch could not be justified.
Some of the factors to consider when making a business case for offering remote image check capture are:
• Willingness of business customers to pay fees for convenience,
which are more likely from customers in areas adequately served by
branches;
• Reduced cost of customer replacement that comes
with improved customer retention and increases in average customer life;
• Cost savings from using remote capture as a substitute for a bricks and mortar presence;
• Increased close rates and reduced customer acquisition costs,
particularly where remote capture can overcome objections to distance
from
branch, or the bank can be positioned as progressive and customer
service oriented;
• Ability to aggressively grow without margin erosion, which is
particularly important when fixed costs are high or immediate growth is
needed;
• Customer site costs including scanner, PC, if required, and image software;
• Increased bank expenses for distributing equipment and software
to customers, answering operational non-banking questions, equipment
for
receiving image files, proving deposits and printing substitute
checks, if required; and
• Reduced or unchanged costs for operators proving deposits
(automation should reduce), and long term lower processing costs from
earlier image
capture.
We have an evolving presentation on Check 21 Opportunities that among
other topics looks at the business case for remote capture, both from
the perspective of the bank and business customer. This includes
looking at how offering a remote capture product might affect a bank's
branching strategy for entering new urban business areas. Siting
branches farther apart, and in exchange for accepting a little less
market share in a given territory, increasing profitability and
allowing more rapid geographic expansion within a given budget for new
branches.
If you would like a copy of this presentation please contact Bob
Popadic by calling 1-978-468-5855 or sending a e-mail to
Rpopadic@LCGLLC.biz
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