Why Smaller Banks Should offer Image Cash Letter Deposit Services

Why Smaller Banks Should offer Image Cash Letter Deposit Services
Farmers & Merchants Bank, a $2 billion-asset bank based in Long Beach, Calif., is launching an image cash letter service. The accompanying press release caught the eye of American Banker resulting in a story today on the topic, Big Check Volumes Aren’t Just for Big Banks, a Small Bank Says, written by John Adams. I was grateful to see an important (albeit not terribly exciting) topic get coverage in American Banker. This blog post serves to add some additional insight to Adam’s article, specifically, why the opportunity for image cash letter (ICL) deposit services is so large. In a previous post, I commented on why wholesale lockbox belongs in the headlines even though it has been around as a staple treasury management offering for five decades. The post emphasized that fter all these years, the market opportunity for wholesale lockbox services remains significant. While the majority of large corporations already use bank WLBX services, WLBX adoption falls markedly with the size of business – particularly among businesses with annual revenues below US$250 million.
WLBX and ICL Deposit Services are Complimentary

WLBX and ICL Deposit Services are Complimentary

The above chart shows the number of businesses by annual revenue that utilize bank WLBX services, or not. Why wouldn’t a good size company, say one with $250 million in annual revenue not use a bank for WLBX services? Because, for whatever reason, they choose to do the work internally. A significant number of these companies have their own remittance processing systems. Some are dated, but most are image equipped and are equipped to send x9.37 compliant files to a bank (or could be made to be). Lots of businesses in other words. All are ICL deposit candidates. Offering an ICL deposit capability used to be a hassle. In the early days of image exchange, there were many variations on the x9 standard going around, and accepting an image file from someone’s in-house system was easier said than done. Well, it probably still is, but not nearly as much so. Now, a bevy of solution providers offer this capability. Some offer outsourced item processing services also, making the task even easier for smaller and midsize banks. But most banks have been focused on offering RDC solutions bundled with desktop scanners, even though tens of thousands of businesses don’t want to buy RDC – they already have scanners. As a result, a minority of U.S. banks offer ICL deposit services. And, the smaller the bank, the less likely ICL services are offered. icl-deposit Hungry for fee revenue? Opportunity knocks!

Pitney Bowes’ RDC Initiative – when will banks engage?

Pitney Bowes’ RDC Initiative – when will banks engage?
Pitney Bowes and Jack Henry & Associates (JHA) have teamed up to offer remote deposit capture (RDC) to small businesses. JHA’s ProfitStars division is providing the solution. The relationship was announced in May. E-mail marketing has begun among Pitney Bowes installed base of postal meter customers. The bank-neutral solution branded Click Deposit provides bundled scanner fulfillment support and processing for a monthly fee starting at $39.95. The lowest cost option supports up to 150 checks per month. Businesses having higher check volumes would be invited to join at higher monthly rates – as high as $149.95 with several options in between. All plans require a 3-year commitment which includes leasing the Panini MyVisionX-30 scanner. The solution optionally provides an AR extract suitable for QuickBooks users. Click Deposit customers enter a merchant processing services agreement with JHA which is, of course, riddled with mention of Check-21 and ACH terms that perhaps one in ten thousand small businesses would understand. JHA underwrites each merchant and assumes the associated deposit risk. Funds availability is not specified in the agreement, only that funds may be delayed at JHA’s discretion. Merchants are liable for fraud, loss due to duplicate presentment, NSF and proper safeguarding of original items once scanned per the agreement. All reasonable terms in our opinion. In part, the agreement is lengthy because deposits are processed using both Check-21 and ACH rails. All deposits are aggregated at one or more presentment banks that clear items using image exchange. Individual DDAs at the multiple banks of first deposit are then credited using the ACH. Celent finds Click Deposit a solid service and a logical extension to Pitney Bowes existing solutions on terms that are currently competitive to what most banks are providing. The big difference between Click Deposit and individual bank solutions (beyond the incidental use of the ACH) is that Pitney Bowes is actually selling the product. It will, no doubt, enjoy this advantage for some time as most banks remain slow to introduce remote deposit capture to the small business segment. Longer-term, Celent expects competitive offers at lower monthly pricing utilizing less capable (and expensive) scanners aimed at small businesses with low check volumes. As the market matures, low total solution cost and access to efficient distribution channels will be of growing importance. In the absolute, Celent finds this a significant initiative. Pitney Bowes enjoys a large installed base and support infrastructure well-suited for Click Deposit. Banks that have not yet awakened from their slumber need to realize that the market is not standing still. Despite the troubling economy, a number of new, bank-neutral solutions are close aboard.