 By Deborah Matthews, AAP, Director of Sales Support,
ProfitStars, a Division of Jack Henry & Associates
Despite the initial hype characterizing remote deposit capture (RDC) as
a “fast track to the information superhighway,” financial institutions
that were early deployers of RDC typically were slow to roll out the
new technology to their customer bases.
Most institutions adopted a
cherry-picking strategy, selecting only their well-established, solid
businesses as targets. But the times, they are a-changing.
According to the U.S. Census Bureau, there are approximately 24 million small businesses. And BAI’s Banking Strategies reports that small businesses contribute more than 50 percent of the retail payments stream today. These statistics suggest that financial institutions should consider focusing more efforts on addressing the payments strategies of this burgeoning market.
Most of these businesses are still very dependent upon paper-driven payments. The typical company receives 74 percent of its B2B payments by check, according to a recent study by the Association for Financial Professionals (AFP). While 50 percent of average small businesses only receive about three checks per day, 80 percent of the most profitable small businesses stated that they prefer a technology-based electronic payment platform. According to Aite Group, LLC, 16 percent of small businesses are already using remote deposit capture services.
It is easy to see why small businesses would want to harness the benefits of electronic payments. With the economic landscape becoming increasingly challenging, companies are feeling the squeeze and must find ways to improve productivity and cut costs. Consider the balancing act that all companies are facing. The price of gasoline is steadily rising, so the cost of driving to the financial institution to make deposits cuts into business’ bottom line. In the current competitive business environment, maximizing staff productivity has never been more important. And almost daily there is a story in the news about data security breaches. It’s no wonder that the convenience, time savings, cost efficiencies (such as improved funds availability), and security benefits promised by RDC is generating interest from the small business sector.
In response to this growing interest by small businesses, many institutions are ramping up their efforts to provide a comprehensive RDC solution that better meets the diverse needs of this market. Thirty-five percent of retail banks have launched a dedicated small business RDC initiative, with another 30 percent expressing interest in RDC as a viable small business product. In fact, many of the larger banks have taken aggressive steps to court the small business market. According to Aite:
• 69 percent believe that winning small business is extremely important
• 81 percent have a dedicated sales force assigned to prospect in the small business market
• 50 percent assign a single point of contact to the small business (relationship manager)
Institutions that haven’t yet jumped on the RDC bandwagon and positioned their product offerings for the small business market do so at their own peril – 57 percent of small businesses say they would leave their current bank if a competitor offered the right mix of products and services.
There is a wide array of advantages for financial institutions that tap into this nascent market. If the industry experts’ predictions are correct, there will be five million small businesses looking to adopt RDC by 2012 – a veritable gold mine of potential new depository relationships. And because 90 percent of teller transactions involve checks, RDC can help reduce branch traffic. American Banker recently reported that RDC is impacting branch foot traffic in 60 percent of financial institutions that offer it, and some of those institutions are experiencing declines of more than 20 percent in branch transactional volume. This frees up staff for other duties while allowing financial institutions to transition customer service to a more cost-effective channel. Among the other operational benefits RDC offers is faster availability of funds, greater time savings, and later deadlines for deposits. In addition, RDC is also viewed as a “sticky” product, meaning financial institutions will benefit from acquiring new customers, retaining existing customers, and deepening their existing customer relationships.
But this exciting new opportunity is not without its challenges. The following list represents just a few of the issues for financial institutions targeting the small-business niche:
- Package pricing: Smaller companies may be more attuned to paying one monthly fee that encompasses all services and transactions, allowing them to budget accordingly.
- Hardware: Smaller businesses may be more price-sensitive than their larger counterparts, and therefore will be likely candidates for the newer, lower price point scanners being developed for downmarket deployment. In addition, deploying scanners across a diverse business customer base may require financial institutions to outsource or utilize third-party vendors for scanner fulfillment.
- Risk management: Financial institutions will need to conduct appropriate due diligence in the areas of “Know Your Customer” risk exposure, underwriting and compliance education. Institutions should also select RDC solutions with robust risk management features, such as duplicate item detection, exception management and velocity settings (for monitoring transaction size, number of transactions, number of files, etc.).
- Internal education: The needs and requirements of small businesses are varied, and “one-size” RDC will not be a good fit. Successful penetration of the small-business market will require well-trained employees who are skilled at analyzing a company’s business model to suggest a winning solution.
- Next-generation RDC functionality: Small businesses will expect a comprehensive array of functionality integrated into a single platform, including Check 21, ACH (e-checks, single and recurring payments, telephone and Internet checks), and advanced reporting features, including the ability to integrate data into accounting packages like QuickBooks®.
As the market for RDC technology expands, financial institutions should be diligent in adapting to requirements and requests of new segments like the small-business sector. And as the technology continues to mature and market demand moves downstream, more businesses than ever will leverage the benefits of RDC technology successfully. Financial institutions interested in gaining market leadership in the small business arena will proactively position their services to provide the benefits this technology offers this promising market.
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