Think Firm Finds Credit Unions in Image-Capture Surge
Many credit unions have been faced with sharp reductions in capital spending in the past year, but that hasn't stopped them from rapidly adopting branch image-capture solutions, said a new report from research and advisory firm Celent.
Spurred by "near ubiquitous image exchange adoption and the increasing cost of processing paper checks," an estimated 2,300 U.S. financial institutions implemented some form of branch image capture in the past year, bringing the total number to more than 12,000, the new report said, adding that credit unions were a bit more likely to have adopted by now than banks.
About 80% of all U.S. financial institutions have branch capture solutions in place or in progress, and in two years, Celent forecasts that 95% of U.S. financial institutions will be using image capture in the back office or at the teller line in some way.
"In the past few years, distributed capture has moved from being an item processing phenomenon to being in the mainstream of retail banking, taking a prominent spot in both branch and ATM channels," Celent Banking Group senior analyst Bob Meara said.
Retail financial institutions see many benefits in distributed image capture, a term that refers to "the process of capturing, validating and managing check and related payment information at various points of physical presentment," said in the report, titled "Imaging in the Retail Channel: A Second Wind for Teller Capture."
Among them are reductions in item handling costs, transportation, labor, back office hardware and software maintenance, Celent said. And since image-based workflows take place earlier in the day than do paper-based workflows, they can lead to longer processing windows and same-day clearing.
Forms of image capture include branch capture, which occurs at the actual branch, ATM image (envelope-free) capturing and imaging activities that take place outside branches and ATM machines (in homes, in offices and through mobile devices).
While credit unions were not the first to deploy branch capture, they've demonstrated widespread use, the Celent report said, estimating that two-thirds of U.S. credit unions now truncate and transmit check images at that level.
The reasons include as "a means to reduce the processing cost of deposits received from their member credit unions" and "a way to increase the footprint of correspondent processing services."
"Credit unions enjoy the reputation of being a cooperative lot," Meara said. "Their reputation is supported by observing the rate at which credit unions have jumped on the BIC bandwagon. The smallest credit unions may be last to adopt because many literally carry their branch deposits to nearby bank or credit union branches for collection."
He added, "Teller capture is getting a second wind. Most FIs hurried branch capture projects along, chasing transportation cost savings as the Federal Reserve closed check processing facilities. Now, a small but growing number of FIs are taking a second look at how imaging at the teller line can further reduce costs and improve the customer experience."
Celent also found that credit unions are miles ahead of banks in ATM image capture and slightly ahead in branch capture. Based on a July 2010 survey, credit unions "were twice as likely as banks to have installed image ATMs."
Credit unions invested 66% of their technology budgets in branch capture in the past three years-two points more than banks' 64%-and in a survey of delivery channel funding priority, Celent found that credit unions place a higher importance on ATM and branch network funding than banks do, the Celent report said.
Overall, financial institutions are at the peak of a branch capture adoption growth spurt. The number of financial institutions adopting at least one form has increased steadily since 2004 as has the number of scanners deployed by the financial institutions. And both continue to grow.
"Branch image capture has been greeted with broad-based demand," Meara said.
Celent finds adoption trends are closely related to a financial institution's size-those with assets in the $5 billion to $10 billion range had the highest adoption numbers, and those with assets in of $10 billion to $50 billion adopted branch capture the least. And smaller institutions (those with assets under $5 billion) are quick to adopt branch capture solutions "when presented with the opportunity," Celent said.
The report also examines ATM image capture, which Celent researchers found is a low priority for financial institutions as a whole. Just 39% of U.S. financial institutions have deployed deposit-taking ATMs.
"Image ATM adoption continues to gain momentum, but the rate of adoption pales compared to other forms of distributed capture," Meara said.
Celent also touched on the capture device market in its report, noting that desktop check scanner shipments are on the rise-299,000 units have sold so far in 2010.
Meara concluded that adoption of broad-based distributed capture will continue and that several trends have been noted, with smaller financial institutions choosing an enterprise-wide approach and large U.S. banks going with an incremental approach.
However, "there are no pat answers to which approach is best. Detailed business case analysis will be required in many cases," Meara said.
One thing is certain-financial institutions that have stayed off the imaging solution train will likely have to get on at some point.
"Image exchange adoption continues unabated with nearly 97% of U.S. financial institutions receiving electronic images," Meara said. "As traditional paper check processing infrastructures are dismantled, distributed capture models will become a practical necessity among the remaining financial institutions having not yet adopted."
Celent said the report findings were based on surveys with 12 distributed capture vendors, telephone interviews with solution providers, aggregators, hardware manufacturers and financial institutions, as well as a Web-based survey with 187 financial institutions.