Payments Watch

I listened in on Alogent’s Perspectives on Branch Image Capture Strategy presentation last week. You can download the slides here. Steve Ledford from McKinsey’s Global Concepts was the main speaker.

Given Check21 and growing rates of image exchange in the settlement of cheques in the US (and similar truncation regimes elsewhere such as Canada), the business case for branch capture and truncation of cheques has never been better. Note that even before Check21, branch capture solutions have been widely used. In the past, cheque MICR line and amount were captured at the branch, but the items were still forwarded to a central processing centre for encoding and clearing (as the settlement process required the presentment of the original item to the paying bank). Even with the movement of paper after the initial capture, this was thought beneficial by many as on us cheques and non-cheque items such as deposit, cash and GL tickets could be truncated at the branch. Slower courier options (i.e. less expensive) could also be considered as the encoding could be done in a more automated fashion on higher speed devices.

With the potential of eliminating the transportation of items all together (transportation of items from the branch network into the operations centre can easily be the second largest component of processing centre costs after labour), the business case becomes very compelling. Some of the interesting things I noted from the presentation:

1. Think of the bank’s entire distributed capture strategy: will you do front counter capture or back counter capture, or use a hybrid approach (where for example, transactions with greater than 5 items are captured back counter and transactions with 5 items or less are captured at the teller station)? Can the strategy be enlarged to include not just the walk in customers, for example, image enabled ATM’s, image capture in the cash vault and/or the use of mini-hubs for capture?

2. It does not have to be, nor should it necessarily be, an all or nothing approach. For example, if you still need to transport other documents from the branch (e.g. loan documents) to the processing centre, the transportation cost may be more “fixed” in nature. Likewise, some transportation may be more expensive than others. Perhaps there is some “low hanging fruit” branches that have a more compelling case for being image enabled because of geography, uniquely high transportation costs, a greater concentration of non local cheques or a large amount of small volume transactions - making front counter capture especially compelling.

There seemed to be some concern about moving proof of deposit and transaction balancing to the teller (instead of the proof department), but of course with image capture you can always decide to prove the deposit afterwards, and do that proof remotely. This arrangement could be compelling if there are customer service, or service time concerns at the branch.

Lastly, it should go without saying that given the relatively high cost of generating an image replacement document (IRD), you need to have a certain level of image exchange participation in place to make 100% branch truncation cost effective.