Electronic Check Processing: Is Better Good Enough?

It may be time for a new deposit processing model.

April 25, 2012

While electronic check processing is a step toward operational efficiency, it doesn't go far enough to eliminate exception processing and associated costs. What's needed is a complete overhaul of the procedures and tools used in deposit processing.

Disappointing branch capture results

As branch capture becomes an accepted practice, many assume that it will decrease exception processing and adjustments. Unfortunately, in the migration to branch capture, many credit unions have just implemented an electronic version of a paper-based operation that uses multiple steps and processing devices.

This increases wait times for members and hinders tellers’ ability to accommodate deposits that include a large number of checks. Without proving out the deposit, discrepancies go undetected.

Poor quality or unusable images and claims against the institutions introducing them into the system can make distributed capture seem like it's just creating more headaches.

And while Check 21 and the subsequent availability of check-scanning devices made it possible for images to be captured anywhere–in theory saving credit unions and their members the time and transportation costs–the risks may outweigh the benefits if allowed to go unchecked.

Implementing branch capture, migrating to teller capture, and making remote deposit capture (RDC) available to commercial accounts can reduce the handling costs of physical documents to some extent.

But none of these strategies resolves the problem of preventable exception adjustments or relieves the time constraints of managing large or complicated deposits.

Obviously, more streamlined processing with fewer exceptions and fewer adjustments is necessary to control rising costs. But there's also a need to re-envision the operation as a whole and to create new tools to mitigate factors that generate exceptions

Rethinking current deposit processing model

Cash and checks have historically been viewed as too different to be processed together. Neither credit unions nor providers have promoted a processing environment where these items are scanned and captured by the same device, let alone by a single operator.

Using a single imaging/scanning tool to process and image checks, cash, deposit slips etc. can bring tremendous operational efficiencies. This would represent a great step forward in the race to achieve up-front balanced deposits and the ultimate solution: straight-through processing (STP).

In STP, check amounts are verified at the point of presentment; transactions credited instantly, like cash; and funds availability improved. Check 21 and the advent of distributed capture set the stage for STP. But many institutions continue to manage cash and checks as separate functions.

Achieving efficiencies

The ability to process, verify, and record an entire deposit using a single machine at the point of presentment definitely changes accepted back counter or teller capture practice. As a result, branches could reduce or eliminate associated costs such as post-capture error correction, multistep deposit processing, and the purchase and maintenance of single-purpose equipment.

Likewise, this capability means members can reap rewards like fewer account adjustments, faster moving lines, large deposits processed quickly, and transactions balanced and verified instantly.

Business accounts also could use this system to process checks for RDC or image cash letter (ICL) deposits, thus reducing transaction errors as well.

With STP, credit unions could double their check-scanning speeds, maintain a 99.5% accuracy rate, and process currency as well as checks.

By redefining the deposit capture process from the point of presentment with technology that brings check, currency, and deposit slip processing together, credit unions could greatly reduce the number of exceptions and greatly improve operational efficiencies.

MATTHEW GNIECH is check image product manager for Cummins Allison, which provides money-handling solutions to the financial industry.