By Patti Murphy
Remote deposit capture (RDC) is having a profound impact on banking and payments. By most estimates, at least one third of U.S. consumers now use RDC to deposit checks to bank accounts and prepaid debit card accounts. That exceeds the share of those who use mobile payments, which a recent report by the Deloitte Center for Financial Services put at 29 percent of banked Americans.
Large corporations that receive numerous checks were among the earliest adopters of RDC. The majority of small and midsize businesses (SMBs), however, continue to accept and deposit paper checks. According to research by the consultancy Celent LLC, checks and cash remain the most widely accepted payment methods among SMBs.
"Businesses with in-person or brick-and-mortar delivery models overwhelmingly preferred checks to ACH, cards or PayPal," Celent Senior Analyst Bob Meara wrote in a June 2015 report. Meara added, "Checks may be old technology, but they work for the majority of SMBs." Meara's research suggests that nearly half of all businesses with under $100,000 in annual sales go to local bank branches four to five times a week to deposit checks.
Vijay Balakrishnan, President of the StratEx LLC consultancy, credits smartphones with breathing new life into RDC by enabling more and better use cases. "If mobile hadn't come along I think RDC adoption would have plateaued," he said during a recent interview.
In addition, one out of five consumers and small businesses are cashing checks at nonbanks (like check cashing services) so that they can receive funds immediately, for a fee, according to a new survey from Fiserv Inc. We all know that small businesses tend to be run on thin margins. Often when SMBs receive checks they need to pay out that money immediately. Among the small businesses surveyed by Fiserv:
Several companies, including Fiserv, offer solutions that address this need, and some banks are getting into the action.
Atlanta-based Ingo Money Inc. pioneered the process of immediate funds availability (for a fee), which leverages mobile RDC, underwriting algorithms, analytics and sophisticated processes to ferret out fraudulent checks. In effect, these are short-term loans to qualified cardholders, since check holds can last a few days or longer, noted Drew Edwards, Ingo's founder and Chief Executive Officer.
Faster availability is a money-maker, too. Ingo customers, for example, pay upward of 4 percent of the face value to deposit checks to prepaid or bank-issued debit cards and gain immediate access to the funds.
It has been said many times before, but it bears repeating: checks aren't going away anytime soon. Also, while the number of checks written may be declining, the total value of those checks is on the rise. Checks now account for 40 percent of the value of all noncash payments, according to Federal Reserve research. "Virtually all B2B payments are check based, as are the majority of high-volume bill payments and payroll," said Brandes Elitch, Director of Partner Acquisition at CrossCheck Inc.
Dealing with paper checks can be costly. The Fed estimates the mean distance traveled to deposit checks at a bank branch is three miles; that works out to a round trip cost of $3.24, based on the Internal Revenue Service's current mileage allowance.
Assuming it takes 15 minutes to travel to a bank branch and back, the labor cost of dispatching a $10 an hour store employee to deposit checks is $2.50 per trip. That's an all-in cost of $5.74 per trip, or $28.70 a week for daily depositors. With the potential to eliminate such costs RDC should make sense for most merchants. Yet, even the most optimistic predictions put SMB adoption of RDC at well under 50 percent.
So why are merchant services companies not jumping on the RDC bandwagon? I've been asking this question for years. The typical response I receive involves pricing models: ISOs and merchant level salespeople (MLSs) are focused on collecting residuals, and checks don't fit that pricing model. Yet, when I asked Elitch recently why ISOs should sell RDC services, he noted that CrossCheck pays residual commissions to sales partners who bring CrossCheck merchants. This, and the ongoing compression of interchange margins, should be incentives for ISOs and MLSs to take another look at adding RDC services.
"The reality is that it doesn't take any more time to swipe a check through an imager than it does to swipe a card," Elitch said. "All checks are now cleared digitally." As a result, many clear faster than automated clearing house payments, which can take two or three days to post.
And setting up check scanners isn't much different from installing card terminals. "It is really simple," Elitch said. "Our software is downloaded [to a merchant PC connected to a scanner]. The merchant brings up the screen, swipes the check through the imager [scanner], and within a few seconds we come back with an authorization or a decline." The customer receives a receipt and a franked check, he noted, adding that CrossCheck does "the banking for the merchant from there, so they never see a return item in their account."
When it comes to getting faster availability for deposits, businesses do not appear to be particularly price sensitive. A 2013 Aite Group LLC report revealed that 56 percent of banks were charging or planning to charge businesses for mobile deposit, either on a per-transaction or monthly basis.
One way to grow RDC adoption among merchants that is advocated by John Leekley, founder and CEO of RemoteDepositCapture.com, is the development of POS platforms that support acceptance of all types of payments.
"For many businesses with small payment volumes, a smartphone or tablet is all that is really needed today to accept and post payments," Leekley said. "Businesses with larger volumes of payments, however, typically require separate devices for different payments (checks and cards, for example). An RDC terminal would certainly meet their needs. It would eliminate hardware clutter and streamline operations."
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at firstname.lastname@example.org.
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