Community Banks See ‘Survival,’ New Business in Remote Capture

Some 16% of community banks offer remote deposit capture of checks to business customers, and nearly one-third of these say they have adopted the electronic check technology as “an essential survival strategy,” according to a survey released on Monday by the American Bankers Association. At the same time, 65% of the banks offering the service say it has helped them bring in new corporate business, while just 8% indicated they lost business before adopting the technology. Perhaps because of results like this, the survey indicates that another 33% of responding community banks plan to start offering remote capture this year, with 9% looking to adopt it in 2008 or later. Five hundred and ninety institutions responded to the ABA canvass, called the Community Bank Competitiveness Survey. The survey also reveals that 53% of the banks have installed Check 21 technology, the gear that allows banks to image checks and trade printouts of those images, or substitute checks, for settlement. Trade in these substitute checks was authorized under the 2004 Check Clearing for the 21st Century Act, from which Check 21 is derived. Check 21 technology serves as the backbone for remote deposit capture. An additional 23% say they will implement Check 21 in 2007, with 15% planning to do so in 2008 or later. Another 10% said they were undecided about the technology. Among reasons for adoption of remote deposit capture, “essential survival strategy” came in first with a 30% response, followed by a desire to be “on technology's leading edge,” which drew 24% of respondents. At 16%, reducing processing costs came in third, with pressure from competitors logging a 13% response. Banks that don't offer remote capture say the leading reason is that they do business in a small geographic market, making it easy for customers to get to the bank to deposit checks (53%). Lack of demand racked up a 44% response, with a desire not to discourage visits to the bank and concerns about fraud tying at 12%. Professional businesses lead the way among customers expressing interest in remote capture, with 74% of the community banks citing this category. The No. 2 category is service firms (55%), followed by contractors (38%), retailers (25%), and municipal governments (25%). The relatively low ranking for retailers may reflect the large volume of low-value checks supermarkets and other consumer-oriented businesses accept. The expedited clearing offered by remote deposit capture, which allows businesses to scan checks and transmit the electronic images to their banks for settlement, may offer less in float benefits for such businesses than the costs they incur from their banks for using the service (Digital Transactions News, Feb. 6). In another part of the survey, community banks sounded a pessimistic note about health-savings accounts, tax-advantaged vehicles some see as fertile ground for debit cards linked to funds. While one-third of the banks have gone into HSAs, they report disappointing results, with only 17% saying the accounts are “a good deposit source.” Some 63% of the institutions not offering HSAs cite “insufficient” potential for deposits and profit as their leading reason. On the security front, 34% of the community banks report they have been affected by a data breach at a third party, while only 5% say they themselves have sustained a breach. The ABA survey was sponsored by Unisys Corp. and Jack Henry & Associates.