Corporate treasurers are coming to expect their banks to offer check images with their controlled disbursement, positive pay, account reconciliation, lockbox, and other cash management services. According to the Tower Group, Wellesley, Mass., 10% of companies with annual revenues of over $500 million use some type of image-enabled cash management service and 8% expect to within the next two years. Many more want to know that it's available, so when they're ready to upgrade or their microfilm equipment wears out, they'll be able to get check images.
"If you look at cash management RFPs, image is on almost every one--'Are you image capable? What does your image delivery look like? Can I do this, can I do that?'" says Rich Wheeler, senior vice-president at United Missouri Bank, Kansas City.
Being able to see images of suspect checks shortly after they're presented can help corporate customers make their pay/no-pay decisions, catch con artists, and reduce their losses from phony checks. When they're reconciling their accounts, being able to look at the images of checks for which the bank's records don't match their own is much quicker and easier than looking through boxes of paper checks or finding the right roll of microfilm. When a customer calls with a question like, "I didn't get my dividend check," an employee can quickly retrieve an image of the endorsed and deposited check and embed it in a letter to fax or mail the customer.
In 1995, 137 banks offered check images to their cash management clients, according to Mentis Corp., Durham, N.C. Among these were Bank of America, Fleet, Bank of Boston, Huntington Bancshares, Banc One, Harris Bank, Northern Trust, Signet, SouthTrust, Central Fidelity, First Chicago/NBD, Wachovia, and United Missouri Bank. These banks hope to keep old and win new customers, possibly generate greater revenue, and potentially reap operational savings as processes formerly done manually are either shifted to the corporate customer or handled more efficiently by the bank.
The reason why more banks haven't started offering this is that
it's expensive. The upfront investment for a check imaging system
for a large bank is around $2 million, for a smaller bank $800,000.
"What banks have to contend with is that imaging is perceived
as a cost-reducing technology, and in fact it isn't," says
Dick Poje, partner at Treasury Strategies, Inc., Chicago. "It
adds to costs. It also adds to the quality of work and throughput
and a whole bunch of other things, but it comes at a price and
until the corporate market is willing to accept that and pay for
it, banks are going to be very reluctant to make that investment."
United Missouri Bank was one of the first banks to provide check images to corporate clients, in 1992. It fell into this business when a large Boston-based mutual fund company asked it to image process its shareholder drafts, archive the images, and provide imaged statements. "We had revenue to support this from the very beginning, we had a sponsor for all intents and purposes," says Wheeler.
The bank at that time could not find a system that could handle the processing of these draft images and its own check images (although there were image capture systems on the market), so it worked with IA Corp., Emeryville, Calif., to build a system. Images are captured by a BancTec 1000 DPM reader/sorter with front and back image lift transports and two Unisys 500 DPM reader/sorters with front and back image cameras. The image capture software is BancTec ImageFirst, while the workflow, archiving, and output of the check images are handled by CheckVision software from IA Corp. running on a Sun Microsystems Unix machine. The images are stored in a magnetic storage device from Sun. UMB paid about $1.4 million for this system in 1992; prices have gone down since then, Wheeler says.
The centralized system in Kansas City provides imaging services for the bank's mutual funds, corporate cash management, retail image statements, and correspondent image-based services.
As it captures and archives each image, the system creates an automatic index from the MICR line. Then when anyone wants to retrieve images, they present the account number and date parameters to the archive and it finds them. The images can be transmitted to another site over a phone line, "burned" onto a compact disk, printed out, or put on a mainframe cassette for a local customer.
Because the transports have dual read heads--both MICR and optical--the MICR line failure rate is much lower than it used to be processing checks in the conventional way. It has dropped from 1%-to-1.5% to less than 0.3%.
On a busy day, UMB will image-process 80,000 items for its mutual
fund customer and over 75,000 items for its commercial, retail,
and correspondent services.
United Missouri's corporate image product--Image ARP--was introduced in May 1995. At the end of a normal statement period, the corporate customer subscribing to this service receives a CD-ROM containing images of all the checks that cleared during the period as well as DDA statements, package post reports, and reconciliation reports. If a customer has a question about a particular check and needs to see it before the end of the cycle, it can dial directly into the bank's archive and have it moved to its PC. Passwords and ID numbers prevent unauthorized employees from looking up check information.
Ninety corporate customers have signed up for Image ARP to date.
Wheeler expects the bank's 560 other cash management customers
to sign up for the service when the price comes down a bit. "When
the price becomes equivalent to standard check output for commercial
customers, whether that's serial sorted delivery or an indexed
microfilm delivery, we'll see more and more usage," he says.
The bank has approved and is developing an image service for its lockbox product and an image return-item system that should be installed by the fall.
It is also considering offering image-based positive pay. Typically with positive pay, each morning the corporate customer gives the bank a list of all the checks it has issued for an account and the bank compares checks presented for payment on that account against the list. The bank tells the company about any items that come in that aren't on the list, and if it provides image capability, it makes the images of those suspect items available. The customer then investigates the problem--it could be an encoding error in the dollar amount field or a keying error in the serial number field, for example. If it finds an error like that, the customer tells the bank to fix it.
"In our environment, we've always done that investigation from live document microfilm as part of our service," Wheeler says. "The image capability would move that responsibility from the bank to our customer and up till now we didn't think that had much business merit to it."
But now the bank is changing its thinking and believes it must
offer image positive pay. "Customers have come to us and
said, 'We've got people here on staff that do that anyway, it
isn't like you're going to add an expense to us if we look at
these images, and by the way, we think we can do it faster than
you,'" Wheeler says. About a dozen of UMB's competitors offer
image positive pay. "We have to keep up with the Bank of
New Yorks and the Corestates and the Fleets and such, we have
no choice."
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