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					Presentation Title:

Delivering on the
ARC and Check
21 Promise
Presented By:
Tom Kettell
Vice President, Marketing
RDM Corporation
Monumental shift in the
payments landscape
          The Transformation from
          Physical to Virtual

Bank Lockbox     In-House Lockbox                       Agent/Branch Deposits



                 Internal Lockboxes
 Bank Lockbox      and Third-Party           Point-of- Payment Collections, Drop Box Payments,
    Clients      Lockbox Providers                 Low-volume Lockbox, Route Collections




 Bank/Regional          Fed/Local/Regional
     Sites                Clearinghouse                     Paying Bank




                                                                            Physical Items
                The Transformation from
                Physical to Virtual
  Electronic         Customer In-House               Agent/Branch Electronic Deposits
Bank Lock Box        Electronic Lock Box




                                                                                        Fed/EPN/
                                                                           ARC System
                                                                                          Visa




                                                                            ECP/IRDs    Fed/ECCHO


Bank/Regional        Fed/Local/Regional             Paying Bank
    Sites              Clearinghouse




                                                          Physical Items

                                           Optimized Items, ACH (POP/ARC) or IRD/ECP
 Channel Proliferation




                         Walk in payments –       Mail in payments –
Point of Purchase        Distributed Locations    Centralized Locations
Face to face             Drop Box                 Lock Box
      POP                      ARC                      ARC
      Substitute Check         Substitute Check         Substitute Check
      Image Exchange           Image Exchange           Image Exchange
 ARC, Check 21, & Image
 Exchange
ARC
      – Permanent rules established in March 2003
      – Convert consumer checks received through U.S. Postal Service
        or drop box into ACH debit transaction
      – Business/Corporate checks are not eligible for conversion
      – Notice = Authorization
      – Major Adoption: 2.3 billion transactions in 2005est.

Check 21
    – Enacted in October 2004
    – New legal instrument called a substitute check
    – All checks (except checks drawn on foreign bank) are
    – eligible
    – Foster innovation in the check payment system without
        mandating receipt of checks in an electronic format
    – Is not image share/exchange
   Check 21–Example      le



 CHECK                                     CHECK
                    CHECK


                            INTERMEDIARY           PAYING
          BOFD                                      BANK
  Compared to




CHECK

                 IMAGE
                         INTERMEDIARY      IRD
         BOFD                                      PAYING
                                                    BANK
So what is a Substitute Check?
   Image Exchange–Example        le



 CHECK                                      CHECK
                    CHECK


                            INTERMEDIARY            PAYING
          BOFD                                       BANK
  Compared to




CHECK


                 IMAGE                     IMAGE
                         INTERMEDIARY
         BOFD                                       PAYING
                                                     BANK
Benefits of Check
Electronification

•   Faster returns processing
•   Fraud reduction
•   Faster collection
•   Reduction of processing costs
•   Possible float gains
The Numbers
FRB - Number of Checks Paid
in 2000 and 2003


    45                 41.9
    40                                          36.7
    35
    30
    25
    20
    15
    10
     5
     0
                       2000                     2003

   Source: 2004 Federal Reserve Payment Study
Payments Growth Continues
as Check Volumes Decline

  As Check Volume Declines the Number of Payments Increases




Source: 2004 Federal Reserve Payments Study
The Pricing Dynamic




 Source: Federal Reserve. Compiled by NACHA -The Electronic Payments Association
Check Electronification is
Growing Even as Check
Volume Declines
ACH e-Checks Continue to
Experience Double Digit
Growth
     25.00%



     20.00%



     15.00%                          2004



     10.00%
                              2003

      5.00%
                       2002

                2001
      0.00%


Source: NACHA
Growth of ACH e-Check
Entries




Source: 2004 Federal Reserve Payments Study
Check 21 has Fostered Change
and Significant Opportunities
Check 21 – First Nine Months



Federal Reserve Experience

•   In June 2005, processed 16.7
    million items through Check 21
    services - 75% deposited via ICL
•   All were converted to substitute
    checks for presentment
•   Peak day: 1.3 million items worth
    $12.8 billion ($10,000/check)
•   FedReturn volume averaging
    25,000 items/day
Industry Concerns Check 21


•   Confusion between Check21 & Image Exchange
•   Multiple Collection Strategies to Consider
•   Pricing Questions
•   Unproven Process
•   Liability for Image Quality? Where should that be placed?
•   Other forms of non-cash payment may be less costly
     – Credit/Debit Cards
     – Automatic Debits & ACH
•   Returns Process with Substitute Checks is Still Being Refined
Check 21 - The Lighter Side
Suze Orman Speaks Out

                       How the New Check 21 Law
                       Affects You
                       Check It Out: New Banking Law Soaks Consumers
“…banks no longer                    Any civics teacher looking for a glaring real-life example of
 have to physically    Congress listening to lobbyists and forgetting about we the people need look no
   exchange checks     further than the new "Check 21" law that kicked into action in late October.
    with each other
before they take the                   In a big fat wet kiss to the banking industry, Congress has
                       authorized electronic processing of all the personal checks you and I write,
  money out of our     meaning banks no longer have to physically exchange checks with each other
         accounts.”    before they take the money out of our accounts. That cuts the processing time
                       down from a few days to as little as a few hours. One industry group estimates
                       the faster processing will save banks $2 billion a year in administrative costs.
                       It's a lot cheaper to zap checks electronically to each other than to deliver them
                       by train, plane, and truck.

                                      I'm all for efficiency, but surprise, surprise, there's absolutely no
                       provision that requires one penny of that savings to be shared with consumers
                       in the form of lower fees. Worse, there's a good chance this new bill is going to
                       end up costing a lot of us a bunch of money. Because our checks are clearing so
                       much faster, consumer watchdogs predict that there is also going to be a
                       barrage of bounced checks flying through the system, further boosting the
                       bottom line of the banks at the expense of our wallets.”
Check 21 - Lessons Learned


•   Supporting infrastructure works
     – Some challenges, but electronic file movement and substitute check
         printing has been successful
•   The need for substitute check printing and transportation will delay the full
    realization of the cost efficiencies associated with image clearing
     – Many financial institutions will continue to rely on paper presentments
         until they can reengineer back office processing
•   Controls in Place for Double Posting
     – Duplicate Items – Safeguarding from the double post
           • Updating procedures and best practices to reduce double postings
                 – Corporate
                 – Financial Institutions
                 – Fed
Image Exchange




  The Future of e-Check
  Payments?
Image Share/Exchange

•   Design
•   Development
•   Testing
•   Agreements
•   Pilots
•   Operating Rules
•   Lessons Learned
•   Validate Assumptions
•   Vet out Risks
•   Modify Controls



First Comes the Plumbing
Image Share/Exchange

•   Product Offerings
•   Image Receive
•   Image Send
•   Return Integration
•   Exceptions Management
•   Controls
•   Settlement
•   Reporting
•   Pricing
•   Deadlines
•   Availability
•   Support


 Then Comes Product
Half of Banks Choose Image
Exchange Even at 10% Cost
Premium

         Banks Who Would Choose Image Exchange if...




   Source: Global Concepts, Inc.
Billers Will Stay with ARC
Until Image Exchange is
Cheap / Available
             Billers Who Would Choose Image Exchange if...




 Source: Global Concepts, Inc.           Note: 34% of Billers “Don’t
                                         Know” at what point they would
                                         choose 100% image exchange.
                                         It’s still a relative unknown.
The Payments Convergence
Business Case for The
Payment Convergence

•   Can you achieve 100% electronification
•   Will Image Share/Exchange ever become ubiquitous?
     – When will critical mass be achieved?
•   Payback period (in a declining check volume market)
•   How do you value float (Fed Funds, Prime Rate or Cost of Funds)?
•   Assumptions: Are they accurate? How do you validate?
Business Case for The
Payment Convergence – cont.

•   Reduced banking fees, accelerate availability, and reduce operational costs
     – Must stage benefits according to when products evolve
     – Concentration of funds / process (reduced endpoints)
     – Returns automation/consolidation
     – Concentration allows you to leverage remaining volume for discounts
     – Substitute Checks are expensive
         • Are a means to an end!
The Future of Check Clearing

•   The Projection
     – ACH check
        electronification and
        Image Exchange will
        run parallel and at par
        in the short term
     – 6 to 10 years from
        now, Image exchange
        will generate the most
        activity significantly
        reducing paper checks
     – ACH and Check 21
        combined, accelerate
        check                     Source: The Forrester Group
        electronification
Remote Capture, Electronic Deposit . . .


  … going beyond an automated drop-box . . .
Impacts of Check
Electronification

•   Increase funds availability, better cash forecasting
     –   Electronically deposits all checks to company’s account next business day, providing faster
         collection and faster notification of returned entries
•   Reduced number of return items
     –   Electronic debits typically post before checks, resulting in more items clearing on first
         presentment
•   Automate and accelerate return item processing
     –   ACH provides early notification of return items, carrying deposit location identifier
     –   Immediate or delayed re-presentment of returns
•   Does not require consumer behavioral change
•   Reduce or eliminate local depository accounts
     –   Fewer accounts to reconcile, reduced bank fees, elimination of cash concentration costs
     –   Simplification of reconciliation of remaining accounts
•   Reduce labor and check processing costs
     –   Eliminate check deposit preparation
     –   Decrease deposit transportation charges and check float
 Case Study | U.S. Treasury

The U.S. Treasury’s Financial Management Services division and the
Federal Reserve Bank of Cleveland needed a paper check conversion
solution that could be deployed to all agencies

  Had to support a highly distributed network of approximately 200 agencies ranging in
   size from 1 to 1000s of locations.
  Had to be scalable (future volumes could be large)
  Had to be robust (e.g. Army installations)
  Had to be flexible (Variety of agency specific needs)
  Had to be secure (Government – Army, Air Force, IRS, etc)
  Had to be very easy to use (remote locations, minimal training)
  Case Study | U.S. Treasury




                               Germany,
                               Belgium,
                               Bosnia,
                               Kosovo
                               Military Bases

                                                                 Singapore,
                                                                 Korea
                                                                 Military Bases


                                                Qatar,
                                                Kuwait
United States                                   Military Bases
Patent &Trademark Offices
IRS
DECCA (Military base stores)
& other agencies
  Case Study | U.S. Treasury




FRB Dallas
Archival
ACH Processing
Verification Database




                        Daily https Transmissions   Local Verification Update
                        Images & Transaction Data   From Main Database in Dallas
  Case Study | Municipality


 Tax payments, user fees, recreation registrations, fines, publications

 Can have consistent or different rules bases across all offerings of the
  municipality

 Benefit from later cut-off times allowing capture in evening
  (e.g. recreation, outdoor events)

 Benefit from time savings in taking deposits to bank

 Need for multiple ways to accept payments – including remote channels
Case Study | Insurance
Company


 Significant volume of walk-in payments at multiple branch locations

     16% - 17% of all payments are walk-in or mailed to the branch location


 Desire to improve the check handling efficiencies at the branch location

 Desire to improve float position

 Desire to reduce deposit accounts

 ACH non-eligible (business checks, money orders, convenience checks) and
  cost structure for equipment for large number of locations caused challenges
  for ARC-only
            Planning for the Payments
            Convergence
Comprehensive Check
Electronification Platform

•   Off-Premise cash letter (customer lockbox)
•   Distributed payment capture (drop box)
•   Person present
•   Two models to choose from
     – ASP model – faster time to market with little to no capital
        investment
     – Enterprise model – longer implementation times and requires large
        capital investment and on-going management
•   Supports ACH, Paper Draft (traditional and substitute check), and
    Image Exchange initiatives
•   Consistent rules base across multiple touch points of presentment
     – Provides a consistent customer experience
•   Basic remittance capabilities – scanning remittance coupons for
    decisioning
     – Can scan multiple coupons and multiple checks
Planning for the Payments
Convergence




                     Internet
                       (ISP)
                       https
                                     ODFI

                       Modem Banks




 Lockbox     Retail POS locations
                 (terminal-based)
                    Presentation Title:


Delivering on
the ARC and
Check 21           Tom Kettell
                   Vice President, Marketing
                   Presented By:
Promise            RDM Corporation




          www.check21solution.com

				
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posted:12/1/2011
language:English
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