Convert, Or Else: Who's Really Driving The Imaging Revolution?
ODESSA, Texas -- Odessa Employees Credit Union Manager Sheila Kelly couldn't believe it when she got a letter from Citibank last fall, informing her that she had 30 days to close her $8 million credit union's "unprofitable" depository account, or it would be closed for her.
"With year-end, the holidays, and then this, I was like, 'are you kidding me?'" Kelly recalled. "It was a pretty traumatic experience."
Not only was her 1,300-member credit union small, it still deposited paper checks, an increasingly undesirable book of business among correspondence banks. However, Kelly didn't think her institution could afford imaging technology, much less find the time to implement it.
"Apparently, there were 60 other credit unions that got the same letter," she said.
It's a generally held belief that consumers usually drive technological advances, but the current push to convert retail institutions to image capturing seems to be driven by the processors, with little thought or concern to managers like Kelly who might not be ready for the switch.
And last June, when the Federal Reserve announced its aggressive plans to further reduce processing sites to only four regional locations and cease check-processing operations altogether by 2010, imaging officially crossed the line from fancy new gizmo to operational necessity.
Kelly turned to Southwest Corporate Federal Credit Union for help, because she already had a cash management account there, and had seen a demonstration on branch capture by the corporate at a league training event. She said Southwest Corporate didn't have to mandate imaging, because the resulting cost savings made the decision a no-brainer.
"I thought the equipment would be around $3,000 or so, but our scanner only cost $800," Kelly said, noting that her credit union purchased the least expensive model available, and it works fine for them.
The busy manager hasn't had time to analyze actual cost savings in the two months since the switch, but said she anticipates she's already earned back the initial investment.
"We weren't earning hardly anything on our funds at Citibank, plus the money just sat there for two days waiting to get collected before we would wire it over to Southwest," Kelly said. "Now, the funds immediately go into our cash management account that earns interest."
Jody Beck, senior vice president of operations at Southwest Corporate, said the conversion of item processing from paper to imaging is happening faster than any other major payment change she can remember. Southwest more than doubled both the number of remote deposit customers and outgoing image exchanges during 2007.
"It's like a chicken and egg thing as far as driving the change," Beck said. "It might seem like industry is driving it because of what we hear about the Fed, and to an extent, that's true; but, the Fed is also reacting to reductions in paper check volume, which is driven by consumer choosing debit card and ACH transactions over checks."
Beck said Southwest Corporate expects to reach the 100% paperless milestone by mid-year, and feels confident all members, large and small, will make the conversion in time. The technology itself is the solution to the paper-processing crunch, she said.
"Imaging takes away geographical limitations for our members," Beck said. "Before Check 21, because of the geographic distance, it wasn't feasible for Sheila to send her deposits to us, she had to use local banks."
Western Corporate Federal Credit Union's Tony Kitt, senior vice president of payment systems, agreed that the industry's conversion to imaging has been brisk, and reported that WesCorp has consistently exceeded member conversion goals since marketing the service in January 2005.
Kitt said WesCorp won't require any members to convert to imaging, and will continue to process paper as long as they can; however, the corporate will raise prices for paper processing services as costs to provide the service also rise.
Conversely, both Southwest and WesCorp said they lower their imaging processing prices as costs decrease, with Kitt saying his shop prices imaging where it thinks the market will be 12 months from now, giving up the extra income in favor of enticing members to convert.
Kitt said the aggregate nature of corporates provides a safety net for natural person credit unions that need extra time and handholding to adopt the technology.
"For a small community bank that doesn't have an outlet like a corporate, they'll get eaten alive or have to deal with a correspondence bank, which is essentially a competitor," Kitt said.
"There isn't really, that I know of, a payment aggregator in the banking system that does what corporates do for credit unions, which gives credit unions a truly distinct advantage."