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The Green Sheet

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Remote Deposit Capture in 2017 – The Year in Review

Thursday, December 14, 2017 (RemoteDepositCapture.com / RemoteDepositCapture.com)

The market for RDC products and services is growing and evolving rapidly, compelling FIs & solution providers to up their games with enhanced solutions, more differentiation and better risk management tools. Here’s how these trends played out in 2017
2017 has certainly been an eventful year for the remote deposit capture industry. From new regulations, industry reports from the Federal Reserve, solution provider mergers and acquisitions, introductions of new services and enhancements of current capabilities, to the evolving risk landscape and mass adoption of mobile RDC, the RDC industry has continued to grow, evolve and thrive.
 
While RDC solutions have capabilities far beyond the simple process of capturing an image of a check (think data capture, validation, integration, reporting and more), the paper check still plays a critical role in the overall RDC process. Nay-sayers have long decried the end of the check, and in turn, the end of RDC. However, there are a few basic truths which cannot be denied: there have never been as many end-users, FIs offering and RDC transactions processed as there are today.
 
Indeed, the notion that checks are passé continues to be challenged, despite ongoing initiatives to move check payments to electronic alternatives. As the Federal Reserve has revealed and we reported here, the decline in check writing that began in the mid-1990s is abating. Total checks written fell 4.8% per year between 2012 and 2015, according to the Federal Reserve Payment Study 2016, compared to 6.2% per year for more than a decade previously. Meanwhile, the average check value rose from $1,239 in 2012 to $1,419 in 2015, according to the Fed’s preliminary data, which was released December 22, 2016.
 
Against this backdrop, the value proposition RDC presents to financial institutions and their customers continues to grow. Early this year, the consultancy Celent estimated that all but a few thousand of the smallest banks and credit unions offer mobile RDC to consumer customers. And a poll of RemoteDepositCapture.com visitors, published in March, revealed an overwhelming majority believe the current base of RDC end-users can at least double in size; a third expect the user base to grow by 5- to 10-times its current size.
 
One sign of this growth potential in the evolution of RDC has been a vendor focus on intelligent scanners that rely on Internet connectivity and support more robust routines. In The Changing Check Scanner Scene, we examined this trend, and highlighted FI and client considerations for evaluating RDC hardware in this new environment.
 
Business Demand for Robust Solutions
If there was one trend that became especially apparent this year it was the popularity of mobile RDC. Ninety percent of FIs participating in the 2017 mRDC Industry Study currently offer mRDC to consumers; 62% have mRDC offerings for business customers. Yet several reports, including this article posted in March, suggest significant swaths of business customers, particularly small firms, continue to take check deposits to FI branches.
 
It’s not that small firms lack interest in solutions like mRDC. Newly released research from Aite Group points to growing demand for mRDC solution sets that meet the needs of small and mid-sized companies, and a willingness among SMBs to pay for these services. That research (reported on here) suggests that if just 30% of SMBs were to migrate to an mRDC offering, FIs could generate $90 million a year in new revenues from those customers. FIs ignore this opportunity at their peril, Aite Research Director Christine Barry warned, as significant numbers of SMBs indicate a willingness to switch FIs for robust RDC offerings.
 
Evidencing the demand, a poll of visitors to RemoteDepositCapture.com, published in May, suggested 4 in 10 small businesses could be using mRDC by year end. (Click here detailed reporting.)
 
While there is no universal feature set that will drive greater SMB adoption, there are some basic considerations that will improve opportunities for success (discussed here). This requires understanding which businesses can benefit most from mRDC and crafting solutions that address those customers’ needs. Needs like eliminating and/or streamlining costly and error-prone collections processes.
 
“The opportunity for banks is in recognizing that RDC as an offering is just one step in many that an accounting or receivables person has to go through,” Rod Springhetti, Vice President, Product Management, Deluxe Corporation, explained in this article published in November.
 
Receivables processing is a complex, time-consuming function that hinders one of the most vital functions of treasury shops: accessing and applying information vital to managing a company’s cash. This has prompted several vendors and FIs to offer solution sets that support end-to-end automation and integration with backend accounting systems. The need for these solution sets cuts across industries and is not predicated on company size, several experts explained in this article posted in July. And as was explained in this article, even small community banks, utilizing new technologies and delivery models (like software-as-a-service), can respond to this demand in ways that add and grow client relationships.
 
Demand for integrated receivables solutions has been stoked in part by the proliferation of payment options and channels, and a perennial push for faster, electronic exchanges. In fact, a poll of RemoteDepositCapture.com visitors detailed here identified the ability to process multiple payment types and integration with corporate back-end systems as the two most important capabilities of an integrated receivables solution.
 
Marshalling Forces to Contain Risks
The digitalization of payments and payment processes drives significant opportunities for financial institutions and their customers. But as several experts pointed out in this article, it also creates new risks, not the least of which are opportunities for fraud.
 
One particularly troubling trend has been an increase in account takeover (ATO) fraud. In an ATO situation, a fraudster uses another individual’s personally identifiable information (PII) to impersonate that individual and access their financial accounts. As we reported in October, ATOs are expected to intensify in the wake of recent massive data breaches revealing PII on millions of Americans.
 
Fraudsters are opportunistic, and some are seizing on the popularity of mobile RDC to facilitate ATOs, duplicate deposits, and more traditional check frauds. Fortunately, there are technologies and processes that can successfully thwart criminals using the RDC channel for fraudulent ends. Several of these technologies and processes were described in a webinar – How to Thwart Account Takeovers with Remote Deposit Capture – presented by RemoteDepositCapture.com and available here for viewing on demand. Mobile RDC can provide a wealth of information and insights into the risk profiles of depositors and transactions. As we emphasized in this post, it’s important that FIs leverage this information intelligently and in combination with other tools to defend against ATOs and other frauds.
 
Solution providers have been bolstering the arsenal of technology tools available to FIs for fighting check frauds, as we described in this August article, with better analytics, partnerships and real-time lookups within and across institutions. Meanwhile, recently approved amendments to Federal Reserve Regulation CC have prompted FIs to require restrictive endorsements for RDC items and to implement solutions capable of verifying the presence of restrictive endorsements. (Read article here.) The amended regulation, among other things, stipulates an FI accepting an RDC item indemnifies any FI that later receives the original paper check for deposit for any losses they incur paying the item, plus associated expenses such as legal fees. The indemnity will not apply, however, if the original check contains a restrictive endorsement. (Read article here.)
 
2017 has been a year of confirmation for many. Confirmation that RDC is not just a “nice-to-have”, but has become a necessity for FIs and their corporate customers. Confirmation that RDC creates value for both end-users and service providers. Confirmation that RDC is not just a passing fad, but will be a part of payments in the US for a very long time. With this confirmation comes the next step in the industry’s evolution: the integration of RDC into the very fabric of payments. This will extend RDC beyond current capabilities to new frontiers of data, risk management and related services. With this as a foundation, 2018 and the future of RDC look bright.
 


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