Networks: Image Archiving’s New Look

 

By Peter Lucas

 

As check volume dwindles, processors and banks are scrambling to find new ways to leverage the fixed costs of their check-image archives.

 

 

 

It’s no secret that paper-check volume is in steady decline. Thanks to the growing popularity of electronic payments, the number of checks written declined 5.7% annually between 2006 and 2009, according to the Federal Reserve’s 2010 Payments Study released in April.

 

Five years ago, indeed, the debit card eclipsed the check as the most used non-cash payment vehicle, according to the Fed, and the rising popularity of the automated clearing house e-check services also has helped reduce consumer check writing, especially in online bill payments.

 

Declining check volume boils down to one indisputable fact: fewer checks mean fewer check images to archive. That’s not good news for the banks that invested heavily in image-archiving technology and third-party providers of such archives.

 

Image archives represent a fixed cost. The higher the volume of images stored monthly, the cheaper it becomes to archive an image. When volume drops, the cost to archive an image increases.

 

Rather than continue absorbing higher costs to archive a dwindling number of check images, processors and banks are attempting to drive down the cost per image stored by tapping into a new sources of documents to archive, such as loan papers and purchase orders.

 

“The cost dynamics of image archiving are dependent on volume, so it makes sense for banks and third-party archives, which have essentially run out of new clients to sign up, to expand the types of documents electronically stored,” says Bob Meara, a senior analyst for Boston-based research and consulting firm Celent LLC. “Using image archiving to reduce the clutter of paper documents, especially at bank branches, makes a lot of sense.”

 

‘A Software Issue’

 

Reducing clutter serves two purposes for banks. First, they can more efficiently store and index documents they are required to hold for several years after the transaction is initiated, such as loan papers, in addition to day-to-day operating documents concerning a transaction, including e-mail.

 

Second, they can reduce courier costs for transporting physical documents related to daily operations between branches and their main storage facilities, since images can be electronically sent and retrieved on demand.

 

“Image archives have evolved from being just repositories to being part of day-to-day operations,” says Lynn Roche, senior vice president, payment services division, at Jacksonville, Fla.-based bank and card processor Fidelity National Information Services Inc. (FIS), whose services include document-image storage. “Banks can electronically store and call up any type of document as needed. We have one client that uses image archiving for human-resources documents.”

 

Lockbox services represent one of the lowest-hanging pieces of fruit for the expansion of image archiving because they are set up by banks to receive checks on behalf of their commercial clients, many of which cannot accept electronic payments. Creating a lockbox archive requires little, if any, change in formatting of existing check archives.

 

Many banks have experimented with lockboxes that convert checks to electronic images since the Check Clearing for the 21st Century Act (Check 21) took effect in 2004.

 

But they have overlooked the potential to expand the service into a full-blown archive for all lockbox documents, such as a letter explaining why a discount was taken on an invoice, that commercial clients might need to access on demand. Once converted to an electronic image, the paper check or document can be shredded.

 

Dallas-based eGistics Inc., a provider of document-management services, is in talks with banks about adopting its imaging solution for capturing all documents sent to a lockbox.

 

“Expanding document image storage to lockboxes or even safe-deposit boxes for consumers is a way for banks to further leverage their investment in this technology and add another revenue-generating service,” says Amer Khan, senior vice president of product development for eGistics. “Banks have the hardware to store and access images, but what’s missing in most cases is the software to make the document available in a digital form.”

 

While expanding image archives to house documents other than checks requires different formatting guidelines and user interfaces to view the documents, setting up a new archive does not require that much more work.

 

“It’s a software issue,” says Khan. “New workflows and interfaces have to be created, but in most cases the existing archiving platform can be leveraged.”

 

NSF Advantage

 

Indeed, New York-based Viewpointe Archive Services LLC can modify its core archive platform to accommodate other types of documents or provide a new one to store documents based on the bank’s specifications for the archive.

 

“The type of platform used depends on what the bank wants to do with the document,” says William Shute, vice president of product for Viewpointe. “Our infrastructure can handle multiple types of content and we have other platforms available that banks can integrate into a common database to allow searches across each archive.”

 

Five big banks—Bank of America Corp., JPMorgan Chase & Co., SunTrust Corp., U.S. Bancorp, and Wells Fargo & Co.—own Viewpointe in addition to IBM Corp. Besides providing archive services for its bank owners, Viewpointe also services processors and smaller financial institutions down to credit unions.

 

Viewpointe’s image-sharing and archiving service allows banks to trade check data and access the archive when they need to see the actual image of the check.

 

One advantage of Viewpointe’s sharing technology is that banks can clear checks with one another, as opposed to going through the Federal Reserve, thereby gaining operating efficiencies by eliminating one big step in the clearing process.

 

Brookfield, Wis.-based processor Fiserv Inc., which in 2008 made its proprietary image archive part of the massive storehouse of images maintained by Viewpointe, is enabling its clients to research checks returned for non-sufficient funds (NSF).

 

Capturing an electronic image of a check flagged for NSF and sending it to the originating bank allows the bank to take action faster than if the check was returned by mail, which might take up to two days.

 

“Investigating a check returned for non-sufficient funds is another use of check archiving,” says Anna Quinlan, president, item processing and source capture solutions, for Fiserv, which processes checks for 1,600 client financial institutions. “As check volume declines, infrastructure costs for check archiving rise and one way to reduce those higher costs is to leverage the infrastructure in new ways.”

 

Image sharing allows paying banks to clear check images without the need for collecting banks to produce a substitute check, or image replacement document (IRD), which increases the cost of processing. Created by Check 21, IRD volume exploded for a few years because the law required banks without image-processing technology to accept them, but their numbers have declined significantly in recent years as more banks have added such technology.

 

‘A Unified View’

 

Meanwhile, as the popularity of electronic bill payment grows, banks are expanding the service to many businesses that are not equipped to accept payments through the ACH. In these instances, even though the consumer paid the bill through a Web site, a paper bill-payment check is generated, which ultimately needs to be archived.

 

Fiserv processes 116 million electronic bill-pay transactions a month through financial institutions, 12 million of which require a paper check, according to Quinlan. The number of such checks has remained fairly constant the past few years, because even though more businesses are adding electronic-payment acceptance, Fiserv’s client banks are signing up roughly an equal amount of new businesses that lack that capability, she adds.

 

As banks look to archive more types of documents, they need to properly index them and the tools to locate them. Banks also need to quickly determine the content of documents without people having to actually read the imaged version. Text analytics and classification, the process by which an archived document can be scanned in-depth to understand its purpose, makes this possible.

 

Unlike keyword searches that locate a specific word or number in documents throughout the archive, text analytics brings context to documents containing unstructured information, such as e-mail or internal memos. The technology reads documents electronically to determine their purpose, as well as the organizations, individuals, and concepts mentioned.

 

“Text analytics can be valuable when there are similar words that may or may not be mentioned in a document such as Sue, sue, or sued,” says Shute of Viewpointe, which has begun offering text analytics as part of its archiving services. “Text analytics and classification can make archiving and managing archived documents more efficient.”

 

For example, banks looking to identify what files can be deleted from the archive because they are no longer relevant can use the technology to avoid having to call up and read each document to make that determination.

 

Some of the typical business problems that content analysis can address include avoiding data duplication, locating all documents related to a loan or transaction on an e-mail or file server so they can be indexed and securely stored, and quickly finding information for legal discovery, according to Shute.

 

“More and more financial institutions are looking to create a unified view of their data regardless of the type of document,” he adds.

 

Pesky Silos

 

As practical as expanding image archiving beyond checks looks on paper, banks still face issues that can hinder its expansion. Internal data silos created by multiple databases proprietary to specific departments within the bank pose the biggest hurdle.

 

“Data silos still have to be broken down within a lot of the large banks,” says George Thomas, principal at New York-based Radix Consulting Corp. “Until those silos are broken down, leveraging the data across a common archive is going to be a challenge.”

 

Data security is another issue banks must address as they expand their image archives, especially those residing in the cloud. Cloud computing is an increasingly attractive option for image archiving and database solutions because software and data are provided to servers via the Internet, thereby making it easier to share and access the information on demand. But it raises questions about data security and where the document actually resides.

 

Compliance with major rules such as the Payment Card Industry data-security standard (PCI) can address most security concerns, but banks typically want to know where the imaged document resides in the cloud, which runs counter to the concept of cloud computing. Cloud computing does not require end-user knowledge of the physical location and configuration of the system that delivers the services.

 

“Bankers are not comfortable with the idea that an imaged document is floating around somewhere in the cloud,” says eGistics’ Khan. “They want to know where the document is for audit and security purposes.”

 

To address these concerns eGistics operates its own data centers that house its clients’ imaged documents, as opposed to shared data centers typical of the cloud-computing model. “That way we can point to what server the image resides on,” Khan says.

 

As providers of image archiving face the grim reality that consumer checks will continue to decline, the key to expanding their archives to other documents comes down to one simple premise—the value proposition.

 

Simply offering banks a way to reduce the tide of paper they are swimming in, despite the growth of electronic banking and payments, will not be enough to persuade them take the plunge. This is especially true if it means having to incur the high cost of breaking down data silos.

 

“Expansion of image archiving needs a stronger value proposition than just the ability to electronically store documents,” says consultant Thomas. “Banks need to be able package their archival and retrieval services to clients so they can create new revenue streams to help pay for the ongoing cost of the technology.”