New survey data and input from bankers offering RDC shed light on pricing, marketing, market expansion, and more.
By Steve Cocheo, executive editor,
Actually, there is still plenty of buzz about remote deposit capture. But the devil is in the details of pricing, selling, and security
Platte Valley Livestock, an auction market in Gering, Neb., sits 450 miles from the nearest branch of its bank, First Dakota National Bank. It would mean a seven- or eight-hour drive to make the regular deposit of checks from the auctions, not something anyone would want to do, even if gas didn’t cost what it does these days.
And, of course, owners Jerry and Sally Weekes didn’t do any such thing. Instead, “they had been overnighting checks by UPS,” says banker Shelly Eilers, senior deposit officer at $650.1 million-assets First Dakota. “This was costing them more than $80 a week, and it was also delaying getting their funds into the bank and available for their use.”
Note that Eilers said, “had been.”
In March 2006 First Dakota launched remote deposit capture service, and Platte Valley Livestock was one of its beta sites. Now the firm is saving courier costs and getting its hands on its proceeds far more quickly.
Not every one of the 20 or so remote deposit capture signups that First Dakota has seen in its first year are situated quite so far from the Yankton, S.D., bank.
But in farm country “down the road” means something different from the same words in cities and suburbs. Hence First Dakota, which uses the Jack Henry ProfitStars RDC package, has found other banks offering competing remote capture products too. One strong competitor is another community bank, while another is Wells Fargo.
And remote capture may take First Dakota further, itself, than it has gone before for deposit relationships. The bank has served South Dakota, northeast Nebraska, northwest Iowa, and southwest Minnesota for many years, but now its influence could grow.
“I see a whole lot more opportunity,” says Eilers, “because this gives us the ability to bank somebody out of our area—like in California.”
This ambition is not unreasonable at all in a time when a bank’s “branch” can be as close as a scanner on a desktop.
Complete customer review is done
For a taste of remote capture in a more suburban market, take the experience of First Bank of Baldwin, a $120 million-assets institution about 30 minutes away from Minneapolis-Saint Paul, Minn.
The bank launched its remote capture effort in late 2005, using Goldleaf Technologies’ web-based approach to the service. The bank has a significant number of business customers whose operations include out-of-area and out-of-state satellite offices. Many have banking relationships in their locales—relationships that remote capture suddenly puts into play. Such firms include interstate trucking and commercial construction firms.
Like many community banks that have adopted remote capture technology for their business customers, First Bank went about things conservatively, according to Robert Wurtzel, assistant vice-president and chief operations officer.
“The complete relationship of the customer is reviewed,” says Wurtzel. “The customer needs to be creditworthy and have enough deposits to cover any returns.”
Initially, thinking that time spent on driving to the bank was a major savings to promote, Wurtzel says the bank aimed at customers who were 15 miles or more away from headquarters.
In time, however, the bank realized that even closer customers were potential candidates for remote capture, and pulled in its “circle” to a one-mile distance from the bank. Furthermore, while originally only check-intensive customers were targeted, the bank found interest strong even among cash-intensive customers.
So now it reaches out to key prospects among them, while finding various solutions for the need to get cash taken care of.
The bank has 22 customers currently on board for remote capture and hopes to double that in 2007.
The only dark spot on the horizon with remote capture is that other institutions have definitely caught on, notably larger banks.
Remote capture is booming
These banks represent only two entries in a growing crowd. Among bankers, vendors, and observers of the banking scene, labels describing the growth of this technology each reach higher than the other.
“It’s wildfire,” says the state bankers association president of a southern state, where many institutions are offering, or planning to offer, the service.
“It’s crazy! The noise we’re hearing is pretty huge,” says Chuck Doherty, vice-president and business manager for remote capture products at Fiserv.
“RDC is exploding,” says Dave Reim, product manager for the image payment technology group at Open Solutions. “It wouldn’t surprise me if sometime next year, remote capture will be a commodity.
“This is the beginning of the end for checks,” says Reim, a veteran in item processing,
In time, especially as the advent of back-office conversion of checks at the retail point of sale into ACH items begins to engage, the check’s eclipse will hasten even further.
The 2007 edition of the Community Bank Competitiveness Survey, produced by ABA’s Community Bankers Council and ABA Banking Journal, featured extensive research concerning remote capture adoption among community banks.
The survey, based on research conducted last fall, found that remote capture had shot to the top of community bank spending priorities. The survey further found that 16.3% of the 590 responding banks offer remote capture, while 33.3% plan to in 2007, and 8.7% more plan to further on. Indications are that even those measures may be conservative. (A similar study among a somewhat different group of community institutions, by Grant Thornton, found that 26% currently offer remote capture.) The ABA survey found that remote capture attracts new clients—64.5% of the sample said they had, and helps retain clients—59.6% said they had.
“Virtually every core system RFP we see nowadays includes questions about our ability to support merchant capture,” says Tom Berdan, vice-president, product management, in the core systems group at Harland Financial Solutions.
Yet the surveys indicated that there are banks that aren’t getting into remote capture. Speculating on their lack of interest, Charles E. Potts, senior vice-president, business development, at Goldleaf Financial Solutions, Inc., says some don’t see demand in their markets—this was cited by 43.6% of the banks not offering remote capture, in the Competitiveness Survey.
However, Potts suspects that some bankers simply haven’t recognized the risks of not moving into this service: “Some banks don’t believe their commercial customers are going to get poached.”
Such institutions, Potts suggests, will find themselves in major-league recovery mode when larger competitors weigh into their customer bases with an attractive remote capture package.
Trends in remote capture
The Competitiveness Survey can be reviewed in full online at www.ababj.com. The charts accompanying this article come from a recent follow-up survey conducted among those banks that reported offering remote capture.
The original and follow-up surveys, interviews with bankers, and interviews with vendors, indicate the following trends:
‰ The time of the pioneers is already at the beginning of its end—maybe even the middle.
This is truly one of those “don’t blink or you’ll miss it” trends. As Exhibit 1, p. 24 shows, the competitive space is filling fast, and frequently with both large and small players.
The costs of being a player in remote capture have been steadily falling, according to Joseph D. Lockwood, senior vice-president and chief technology officer at COCC, a northeastern and central states bank data processing provider.
Decreasing costs have been making it much more practical for community banks with fewer players to step onto the remote capture playing field.
‰ Community banks’ belief in remote capture as a means of reaching new markets is growing.
Branching has been a major outreach effort for community banks in recent years. While the original survey found the jury still out on remote capture as a branch substitute, the follow-up survey strengthened that common attitude a bit. As Exhibit 2, p. 24, shows, more than half surveyed have already successfully reached out of their usual markets for RDC customers. Of those who have, 64.3% have confined this to their own states, but more than one in four have gone both in- and out-of-state, as shown in Exhibit 3, p. 24.
‰ Pricing trends vary.
As Exhibit 4, above, shows, seven in ten banks offering the service haven’t made any change in their RDC pricing since the original survey. However, nearly one in four, in the face of competition and experience, say they are revisiting their pricing, and 7.7% say they have made adjustments.
Pricing issues include charges for the service, including whether or not to apply analysis to the service fees; the arrangements concerning the scanners provided through the bank (lease, rent, purchase); and the amounts of monthly charges.
‰ The profitability outlook is hazy.
Interestingly, the role of remote capture may change in a bank’s product lineup as its ubiquity among banks increases.
As Exhibit 5, above, shows, only 23.1% of the banks answering the follow-up survey say the service is currently profitable. Interviews indicate that for many banks, this may reflect the perceived need, early on, to plant their flag and counter future competition.
However, as Exhibit 6, p. 28, shows, while the majority of banks answering the follow-up survey indicate that remote capture will be a relationship builder, more see remote capture as profitable in the long term.
Some of this may reflect the school of thought among some community bankers that remote capture does not belong on the deposit side of the bank at all, but in the domain of the bank’s cash or treasury management product lineup.
‰ Reported fraud is nearly nonexistent, but continues to lurk out there.
The follow-up survey asked, in strictest confidence, if banks offering remote capture in the original survey had seen any fraud issues. None had, and the vendor community has heard little, as shown in Exhibit 7, p. 28.
Indeed, the FBI indicated in a response to the ABA BJ query that no reports of fraud directly attributable to remote capture have been seen. An FBI spokesman said agency specialists feel the technology is too new to have been undermined. However, this continues to be a significant concern among many bankers weighing the remote capture decision.
Exhibit 8, p. 30, illustrates the conservative approach taken by many banks, and the practices some use at the front end to address this risk. Exhibit 9, p. 30, indicates that some are looking for additional protection from insurance. The companion article to this article, at www.ababj.com, “Watching out for “Bob’s Pizza” and other traps: Avoiding the risks of remote capture,” looks at the issue of fraud as the service is currently offered, and in the light of the March 16 effective date of back-office conversion rules.
While the companion article gets into many more specifics and preventative measures, one reason why fraud hasn’t been much of an issue comes down to the remote capture universe at community banks.
“These are the best companies, today,” that banks hook up with for remote capture, says Jerry Federico, “so fraud hasn’t come into play, yet.” Federico is national sales manager in the ProfitStars division of Jack Henry & Associates.
Deposit service or cash management tool?
Many community banks, reflecting the funding issues that they face, have seen remote capture service as a way of getting more low-cost, noninterest-bearing business deposits in the door. However, as mentioned earlier, some banks see remote capture not so much as a deposit-gathering mechanism/relationship builder, as a tool in the cash management toolbox that they can offer to their business customers. That is, remote capture represents a value-added relationship, because it can turn checks into bank balances more quickly than traditional business banking methods.
Systems that permit customers to not only image checks, but alternatively turn them into ACH items, also make remote capture attractive in a cash management vein. This appeal may be accentuated as community banks adopt back-office conversion for their customers who want to capture at the point of sale. (Input from the vendor community suggests community banks aren’t jumping right onto the new rule.)
An example of the cash management school can be seen at Herndon, Va.’s MainStreet Bank, a de novo launched in mid-2004, President and CEO Jeff Dick saw the appeal of remote capture early on, and the bank unveiled its service in latter 2005. By the middle of 2006, Dick had hired an experienced treasury services expert to run its remote capture and other treasury management services area. Today, the sales staff consists of eight bankers, says Dick, and the bank’s results speak volumes, literally. In mid-March, it had built up to 265 relationships, with 436 accounts, averaging $77,800 per account, for a total of $34 million in deposits. The bank has 125 scanners deployed.
In Abilene, Texas, Ron Butler’s $900 million-assets First Financial Bank, part of a ten-bank holding company, provides remote capture as part of a company-wide treasury management services group. The group offers expanded services in all of the company’s markets.
“Treasury management is one of our main lines of business,” explains Butler. His own bank credits remote deposit for bringing in a great deal of new business, including accounts representing $44 million in out-of-market deposits. These are customers the bank had relationships with before, but not their accounts.
“We weren’t able to bank them before,” explains Butler, “but now we can with this product.”
Goldleaf’s Charles Potts argues for the cash management approach to remote capture, for two chief reasons.
First, taking only a deposit-gathering viewpoint of the service limits the bank’s perspective, he believes. The bank is pushing reduced courier costs, convenience, and time savings, all good things, but not the whole picture. To a degree, the banks are getting what they ask for, a limited gain.
Second, Potts says bankers trained to push cash management and treasury services come from a more aggressive mindset, typically, than bankers raised in the deposit mindset, which originates in the branch.
While in-bank employees do more selling than ever, these days, Potts believes the cash management force remains more sales oriented, “and you need to put this service into the hands of people who sell.” He says that among his firm’s own customers, those who run remote capture sales out of the cash management side consistently enjoy better adoption rates than others. He says this is especially the case when it comes to prospecting for new business, which amounts to taking it from others.
“I do believe that there is a ‘land grab’ rush out there, to lock up those business customers,” says Potts. “If you don’t get your scanner on their desks, somebody else will put theirs there.”
Selling remote capture
Community banks involved in remote capture have differing philosophies and approaches to marketing remote capture.
“The service sells itself,” says First Bank of Baldwin’s Bob Wurtzel. The banker doesn’t mean that literally—he’s referring to the innate appeal of remote capture. So, the bank has found it helpful to assist things along by encouraging internal referrals, using some direct mail, and putting out lists of frequently asked questions. At First Dakota, outreach includes promotion of the product through a company newsletter aimed at ag-banking customers.
In Irvine, Calif., CommerceWest Bank, N.A., was already dealing with 85% of its business customers’ check deposits remotely—that is, through courier service—and the bank found that part of the appeal to customers of remote capture is getting away from having to deal with the couriers, no matter what the precise geography.
“They love the fact that they don’t have to wait for the courier anymore,” says Adrian Darmawan, executive vice-president and chief information officer at the $220 million-assets bank. Others, generally practicing brinksmanship, like not having to deal with impatient couriers who tire of waiting for the firm to finalize its pouch and let the courier move on. Among the ways the bank promotes RDC is through an automated demonstration on its website.
Some community banks have found one of the most dramatic ways to make their points with customers about the appeal of remote capture is to set up demonstration accounts, and, demo scanner under one arm and product literature in hand, dispatch calling officers to prospective signups to bring a glimpse of the new service straight to business customers’ desks.
Observers see equal appeal at the extremes: stressing the convenience of not having to come into the bank to make business deposits resonates among the suburban and urban crowd that hates waiting in traffic to get to the bank, while in many markets, such as portions of the West, upstate New York, rural Pennsylvania, and elsewhere, support the argument that remote capture overcomes the challenge of driving long distances to do your banking.
Grabbing business customers’ eyes
For every First Dakota serving a Platte Valley Livestock that is 450 miles away, there is a Eugene, Ore., Summit Bank. Ann Marie Mehlum, president and CEO of the $76 million-assets bank, says some of her bank’s good remote capture customers are only a block away from the bank. These business people simply don’t want to let their banking take them away from work.
But a key point, for some, is approaching the service appropriately. The challenge, for community banks, in many markets is likely going to be matching the marketing oomph of larger players with bigger promotion budgets, more salespeople in the field, and a broader view of the market.
While many community bankers often brag that large banks represent their best sales force—meaning that big banks’ errors and attitudes often drive businesses to community banks that can improve on the big bank service—this can’t be relied on forever.
The issue is less about technology, and more about having the sales team and internal management capability to sell and support a robust remote capture business, says COCC’s Joe Lockwood.
Fiserv’s Chuck Doherty says some larger banks are already turning remote capture into a standard part of the business checking package, handing over scanners as soon as a firm opens up a new business checking account. In the New York metro area, for instance, PNC Bank has been appealing to business owners with radio ads and other promotions talking about the time savings one can realize using remote capture. For PNC, remote capture is clearly a mass market—mass business market, that is—service.
Community banks that have got a year or two of experience behind them have grown more aggressive with their marketing and promotion, using a combination of media, including their websites.
At Virginia’s MainStreet Bank, for instance, the bank has grown steadily more aggressive in promoting its “MainStreet Connect” remote capture service. The bank’s market, near Washington, D.C., has a huge number of players, and, while Jeff Dick feels there’s lots of business to go around, a bank has to work at it, to stand out from the crowd. The bank’s website, www.mstreetbank.com, contains a video about the remote capture service.
In addition, the site features an online version of an award-winning marketing booklet for remote capture and related cash management products. A key tag line: “MainStreet Connect brings the bank to your office and savings to your bottom line.” In one place, the brochure does some math for the prospective customer:
“A day spa receives hundreds of checks a month. Through depositing customer payments from the office, the owner saves two 45-minute employee trips to the bank each week. If the shop averages $60 in revenue for an hour of services, that’s nearly $5,000 per year just from time savings.”
And the bank also features remote capture in its advertising campaign, which features former Washington Redskins player Darrell Green. Green, once known as “fastest man in the NFL,” notes Dick, “is a real celebrity in these parts.” Green is featured in the remote capture video, and, in mid-March, dominated the bank’s home page, a football in one hand, and in the other, a scanner with the bank’s logo on it. BJ
The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0407/index.php?startid=22