Remote Deposit Capture Overview
Remote Deposit Capture has been called “The most important development the (U.S.) banking industry has seen in years” by the Federal Reserve and others. Almost all of the RFPs (Request for Proposals) Cash Management groups at the largest banks in the USA receive now request information on this service, and nearly all of the top banks in the USA have either just launched the service, or are well on their way to doing so.
The commonly-viewed benefits of this new service, referred to as Remote Deposit Capture (RDC), include convenience, better deposit availability and reduced transportation cost & risk. It is important to note that not all solutions are the same. Additional functionality such as Intelligent Character & Document Recognition, data management through business rules, the ability to feed internal systems, intelligent clearing capabilities and many others can further add value to the business case.
Remote Deposit Capture is a must-have product solution most US-based banks are racing to develop and get to market, and a service every corporation or correspondent bank should consider.
What is Remote Deposit Capture?
Remote Deposit Capture, in its most simple terms, is a service which allows a user to scan checks and transmit the scanned images and / or ACH-data to a bank for posting and clearing. The basic requirements for an RDC service currently include a PC, an internet connection, a check scanner and a service provider such as your current bank. Checks you receive at your corporate or bank location can be scanned to create a digital deposit. This digital deposit is then transmitted (usually over an encrypted internet connection) to your RDC bank or service provider who then accepts the deposit, posts the deposit to your account and assigns availability based upon your availability schedule.
Remote Deposit Capture often has different names depending upon how the service is applied within a particular environment. These names include “Corporate Capture”, “Merchant Capture”, “Image Deposits”, “Image Cash Letters”, etc. In general, we see the term “Remote Deposit Capture” increasingly used as the catch-all phrase for a family of related products and services. Each of these service family members are related in 1 common way: The service allows for checks to be truncated and cleared electronically.
Recent legislation in the USA commonly referred to as “Check 21” makes this entire process possible. Passed in October 2003 and implemented in October 2004, this legislation allows banks to clear checks based upon images of the original items, instead of having to transport the original check all the way back to the paying bank for clearing. The benefits of RDC can be substantial: convenience, reduced transportation risk & cost, better availability, processing efficiencies, the ability to consolidate banking relationships and more.
The Remote Deposit Capture Process
Depending upon functionality and degree of incorporation into your corporate or bank operations, the RDC process can range from extremely basic to becoming a part of your automated receivables processing platform. In its most basic application, here is an example from a corporate perspective:
ABC Corporation receives payments by check in the mail or at their office.
ABC Corp. performs their normal Remittance Processing process. This process includes opening the mail, data entry from the payment coupon / control document (application, form, invoice, etc.), data entry from the check (dollar amount, date, account number, etc.), and information uploads to the Accounts Receivables, Customer, and other databases.
Checks are then typically provided to the corporation’s treasury area where ABC Corp. prepares a deposit (deposit ticket with total and accompanying checks). This process typically includes counting the number of checks and adding the value of checks at least twice to ensure the deposit is accurate and balanced.
With Remote Deposit Capture, instead of physically going to the bank to deposit the checks, ABC Corp. can now scan the deposit ticket and checks using a desktop scanner.
Once the check images are captured, an ACH file (for eligible items) and/or an image-based deposit is prepared. The RDC system can then transmit (usually via FTP over the internet as a 128-bit encrypted file) the deposit to ABC Corp's bank.
The Bank receives the ACH file and / or image deposit, posts to ABC Corp's account and assigns availability based upon an agreed upon availability schedule.
Behind the scenes, the bank has a few different options on how to clear the items. Checks converted to ACH transactions are processed electronically. It is important to note, however, that for any and all checks converted to an ACH, NACHA Rules are adhered to. Effectively, there are two main issues to consider, 1) the writer / depositor of the check being converted must be notified the check is being converted to an ACH transaction, and 2) Not all check are eligible for conversion.
For the non-ACH converted items, the process can be a bit more complex. Unlike what most of the press has scared the public into believing (that checks now clear almost immediately), as of May 2007, less than 25% of checks are cleared as images. How, then does the bank clear items captured via Remote Deposit Capture? By re-printing the images and clearing those re-printed paper documents! These re-printed checks are called Image Replacement Documents (IRDs).
There are 2 basic ways to truncate and clear checks....
While printing IRDs is not the ideal solution for any of the parties involved, until image clearing is widely adopted, this is a bank's only option. The Check 21 law only mandates that a bank must accept an IRD in the clearing process if they are presented with one. The Check 21 law does not mandate that any banks take images of checks, clear images or return checks as images, but it does pave the way for innovation in the archaic way the USA used to (and for the most part, still does at this point in time) process and clear checks.
For more information about substitute checks (IRDs) and Check 21, please visit the Federal Reserve's Guide to Check 21 & Substitute Checks.
It is important to note that the vast majority of banks and corporations can benefit from Remote Deposit Capture today, without the need for banks to clear via image!
Disruptive Technology
Remote Deposit Capture is a "disruptive" technology process enabled by the passage of the Check 21 legislation, as well as the ability to convert checks into ACH transactions. With the passage of Check 21, 100% paper truncation is now a real possibility. The impacts RDC will have upon the Cash Management Industry, Financial Institutions and Corporate Treasuries will be just as (and arguably more) profound than the initial impact of online banking.
The enactment of new check clearing legislation in October 2004 ("Check Clearing for the 21st Century", commonly referred to as "Check 21"), which allows checks to be processed and cleared based upon images of the items for deposit, was the catalyst for the long sought-after goal of full check truncation. Unlike Accounts Receivable Conversion (ARC) which allows truncation of only specific items and gives payors "opt-out" rights, Check 21 applies to all US-Dollar checks drawn on a US-Bank - no exceptions, no "opt-out" possibilities. Finally, full truncation is a real possibility.
Benefits of Remote Deposit Capture
The business case for RDC can be extremely compelling. Typically, the more locations, checks and the higher the deposited values, the better the business case. For additional information, please visit the following pages:
Benefits for Corporations
Issues a Corporation should consider
Benefits for Banks
Issues a Bank should consider
Remote Deposit Capture Basic Requirements
In order for a bank or a corporate user to employ / deploy a RDC service, there are several basic requirements. The basic pieces of the RDC puzzle are:
A Depository Bank
A Remote Deposit Capture Service Provider
Remote Deposit Capture Hardware (Check Scanners)
Updated Legal Agreements
Sean Jones
