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The Green Sheet

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Remote Deposit Capture Issues to Consider for Corporations

Legal & Risk

The Check 21 legislation generally places the responsibility and risk involved with transforming an original paper check into an electronic format upon the converting / capturing bank. RDC is a process which effectively moves the traditional task of check processing from inside a controlled bank environment to the new environment (in the cases of Corporate or Merchant Capture) of a corporate environment. Therefore, most new RDC agreements between a bank and their corporate client assign much of the risk and responsibility onto the corporate client.

Most of the concern revolves around issues of image quality, and warranting against the possibility that an item captured via RDC will only be presented a single time. While the assignment of this risk to the corporate client is fairly standard across the industry, functionality contained in the underlying RDC solution can help a corporation manage some of these risks.

  • IQA: Image Quality Analysis / Assurance functionality of an RDC service can be extremely important. Most agreements make the corporate user responsible for ensuring adequate images. Automated IQA functionality at the point of capture can be the best way to ensure adequate images of checks. Without automated IQA functionality at the point of capture, how can you verify the images created will meet your banks requirements? IQA can also take place at the bank's central operations, but without real-time verification at the point of capture, you'd likely see many adjustments and requests for re-scans, which can result in a less efficient process than simply depositing the original items. Best-of-breed solutions offer IQA both at the point of capture (in real-time), as well as at the banks operations.
  • Duplicate Item Detection: Some RDC solutions offer duplicate item detection at various points throughout the system. If your corporation is now responsible for ensuring an item is presented only once, you'd likely want a systemic solution to identify if a check has already been scanned. Best-of-breed solutions offer IQA both at the point of capture (in real-time), as well as at the banks operations.
  • Processed Check Identification: Assuming the item has passed all IQA tests at the point of capture, corporations may want some way to physically identify if an item has already been scanned. This can be as simple as purchasing a stamp and pad which says something like "Scanned for Deposit to ...", or using an RDC solution which has the functionality to spray some type of endorsement or ink identifier which indicates the item has already been processed.

What to do with those captured checks?

Closely related to the legal and risk issues mentioned above, many corporations now have to contend with what to do with scanned checks. Per industry-standard approaches to RDC legal agreements, the corporate user of an RDC solution is generally responsible for the safekeeping / destruction of the original items. While some RDC solution providers assist with the storage / destruction of the original items, most providers only provide recommended guidelines.

Whatever the approach of your solution provider, the scanned checks should be kept secure. This will mean different things to different corporations, but the bottom line is this: A corporation is now responsible for ensuring RDC-scanned items are processed only once. These items could quite easily (in most cases) be scanned or deposited again. If they are, you corporation could be held legally liable for any or all consequential damages.

In addition, to comply with Federal Regulations, certain items (ARC items, for example) MUST be destroyed within 14 days. Does your corporation or RDC solution have the capability to identify which items must be destroyed in this timeframe? And how long should you hold on to other items? While there is no set timeline as to how long a corporation should safe keep original checks, we agree with some banks who recommend a 60-day timeframe. Assuming a check debits an issuing party's account on the 1st day of their monthly statement cycle, and allowing up to 30 days for the issuing party to question the item, 60 days seems to make sense. Of course, the longer a corporation holds onto the original checks, there's the potential for greater cost and risk.

What to do with Cash?

Unfortunately, RDC in the United States only applies to USD Checks drawn on banks in the United States - so if your corporation receives cash payments, you'll still likely need that local depository relationship or that armored cash service. If you do use an armored service such as Brinks or Loomis Fargo, most armored services have now begin to employ their own RDC solutions inside their cash vaults, so there is the possibility your corporation could consolidate deposits - both cash and checks - through an armored service provider.

At the same time, not all checks may be able to be processed through the RDC Solution. What if there are items which keep rejecting due to poor IQA (such as traveler's checks)? What if the RDC Solution doesn't work - the scanner breaks or internet connectivity goes down? That local depository relationship can still add value in specific instances. Your corporation may not use it as much as before, and most check deposits may indeed be consolidated with a single provider, but the local bank relationship will likely be able to assist you with your cash, and can be your backup plan for items that can't be deposited through RDC.

Employee Payroll

Many of the reasons why a corporation created the local depository relationship will still hold true. If your corporation handles cash, a local bank relationship can be extremely important. Another often-overlooked consideration is your employee payroll. If your corporation were to close its depository relationship with the local bank, how could that impact employee payroll? Many corporations have relationships with these local banks to cash employee paychecks, and closing a depository relationship may place that relationship in jeopardy.

If employing an RDC solution may place the local bank relationship in jeopardy, consider what other alternatives you may have to pay your employees. Can your employees signup for direct deposit? What about Payroll Cards? What if you changed the local bank relationship from primarily a depository relationship to a disbursement relationship? Could your organization pay the local employees through the local bank?

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