Checking Imaging Becomes a Competitive Edge
One the executives whose work helped establish check imaging in the U.S. warns that more credit unions need to pick up the technology or risk a competitive disadvantage with banks.
Jim Hanisch, senior vice president with CO-OP Financial Services, played a role in the development of the standards and infrastructure that eventually came to allow images of checks to be used in financial transactions. Now that the infrastructure has been in place for a number of years, he encouraged more credit unions to make the investment they need to bring check imaging to their members.
“I don't know what it’s like in the East,” Hanisch said. “But out here in California we have three or four major banks which have made check imaging at the ATM a focus of their marketing and advertising campaigns,” Hanisch observed. “Credit unions risk being left behind with consumers if they don't start offering it as well.”
In his remarks, Hanisch echoed those of CO-OP Financial Services CEO Stan Hollen who has also spoken out about the need for CUs to start offering the technology that offers greater speed and lower cost in check processing.
“We have seen as definite trend out here of the three largest banks–Bank of America, Wells Fargo and Chase Manhattan–upgrading their entire fleets to be able to accept check imaging and then launching regional advertising campaigns promoting that fact,” Hollen said. “I don't think there is any question but that credit unions are now at a competitive disadvantage in this area.”
Hollen reported that the bank advertising had played up the parts of the ATM check imaging that consumers had most liked, the fact that they don't have to use an envelope to make a deposit in an imaging ATM or being able to see their check on the screen before they deposit it or having an image of the check on the receipt.
He also noted that even with the extra costs, a check imaging ATM at a remote location offered some substantial savings, for example, no longer having to pick up checks at the remote ATM every day.
“You don't have to deliver cash to an ATM every day,” Hollen observed, “but you have to pick up the paper checks from an ATM every day if you don't use imaging.” If a CU is using imaging, it can hold off on picking up the checks from the ATM for the times it delivers cash to the machine.
Developing a means of using imaged checks for financial transactions had been slowly developing for some time as a means of streamlining check processing and cutting check processing expenses.
But the effort really took off after the 9/11 attacks when the Federal Reserve and the Bush administration began to support a technological fix to eliminate the need to transmit paper checks from place to place.
The resulting legislation, Check 21, was signed into law in late 2003 and went into effect in 2004 and, since then, after a period of time for industry and government to develop standards, a growing percentage of checks have been transmitted and processed by image and has been gradually taken up by a larger percentage of financial institutions.
But CO-OP estimated that no more than 10% of its credit unions have either upgraded their ATMs to be able to image check deposits or begun using other technology that enables their members to image and transmit checks from their home computers or mobile phones. Hanisch cited the current economic downturn and the impact it has had on CUs for much of their reluctance.
“I don't think it’s any great secret that we haven't had the best environment for capital investment at credit unions,” Hanisch remarked. “And this has been true not just for ATMs and check imaging but all across the industry.”
Hanisch said that, by and large, most consumers have come to accept check imaging from their financial institutions, though there was a small amount of resistance among consumers who no longer received paper copies of their checks each month. Consumers have generally appreciated the faster processing times that imaged checks have allowed, though Hanisch acknowledged that sometimes credit union policies have not always matched the changed technologies. For example, sharply shortening check processing times but still requiring a longer hold on deposited funds.
“We work with credit unions to remind them that their check-hold policies should match their technological changes, but sometimes these things are slow,” he added.
Hanisch expected that more CUs will begin using check imaging as they recover from the economic downturn and as more members demand easier and quicker check processing that they have begun to see at other financial institutions.
He noted that falling costs of the technology should help more CUs adopt it. On the purchase of a full service ATM, for example he noted, the addition of a check imaging capability might add $5,000 to the cost of a machine, a relatively small amount in the face of the overall ATM cost.
In addition the proliferation of other services which enable check imaging at the teller counter and using members' computers or smart phones to take checks images and transmit them has further cut the technologies costs, he noted.
Jim Park, CEO of Credit Union 24, the CU-owned nationwide ATM and EFT network headquartered in Florida, doubted as well whether check imaging technology at ATMs will continue to be play a significant role in ATM technology as more time passes.
“What we are seeing is far more interest in other check imaging deposit technology such as that using mobile phones or personal computers,” he said. “Those methods are going to be easier for the consumer and less expensive than check imaging technology attached to the ATM.”
Park said Credit Union 24 had a software package in the works with its upcoming conversion from Fifth Third to FIS that will enable the other check imaging technologies in the network.
But both Hollen and Park agreed that the likelihood for the long run is that check deposits entirely, whether imaged or not, would become part of the past. Hollen estimated that within roughly eight years, CUs evaluating whether or not do deploy check imaging on an ATM will need to consider how often that might be used. Park suggested that the changeover was not likely to happen before he retired but maybe soon after.