Imagine There's No Paper

With some 68 billion checks written last year, financial institutions are well acquainted with the operational and organizational costs ofmaintaining a paper trail. So it's no wonder that banks are finally pursuing check imaging and archiving solutions, technology that was pushed to the back burner as more pressing issues like Y2K were addressed.

"Imaging initiatives have been started and stopped, especially at major banks, for five or six years," said Dave Potterton, research director at Meridien Research. Adoption has been slow, he said, mainly because imaging is seen more as a money-saving than a money-making measure. "Every time in a budgetary process where you have cost savings or back-end processing versus customer-focused revenue generating projects, the cost-saving ones usually end up on the floor."

But recent events have forced a change to this business dynamic. In today's tight economic market, only technology that provides immediate payback will make it to market. Thanks to improved scanning technology, the cost and time savings associated with imaging systems has skyrocketed, and banks are now more willing to give the systems a try.

At Business Bank of Nevada, where an image archive is being rolled out to all branches, workers in central processing are already saving as much as four hours a day on customer queries. All paper-based transaction and statement documents, including checks, deposit slips, general ledger items and monthly account statements, are now being scanned in by the bank's item processor-Plano, Texas-based Aurum Technology, which will store the images on a Web server before transferring the data back to the bank on CD-ROM.

Business Bank has already experienced exponential payoffs from the system. "Previously, to order an archive-stored item, the bank had to go to microfilm, and it would take three to five days. Now it takes seconds," said Paul Stowell, senior vice president at $180 million Business Bank.

The speed and storage capacity of optical media is relegating microfilm to the horse-and-buggy era, according to Joe Kniceley, vice president at NCR Payment Solutions. "Microfilm as a long-term storage technology is dead. Nobody's investing in that anymore."

A single CD holds 28,000 records compared to 3,000 to 5,000 on a reel of microfilm. A DVD has the storage capacity of ten CDs (280,000 records) on one side. Once the technology is perfected to use both sides, a single DVD will store more than half a million records.

AN IMAGE PROBLEM

With such increases in storage capacity, it is no longer a question of whether banks should turn to electronic storage, but how they can accomplish the switch with the least amount of turmoil. Indeed, banks can pick from a broad range of in-house or outsourced image archiving solutions. Outsourcing could prevail, experts say, as banks conclude that imaging technology isn't their core competency.

"A few years ago, banks tried to install in-house imaging products and realized the complexity of what they were trying to do," Potterton said. "It's not just putting these imaging systems in-you have to have IT professionals that understand the system."

For Internet-only NetBank, prohibitive upfront costs and a lack of physical branches compelled it to outsource. The decision to offer imaging, however, was easy. "Being an Internet company, we're expected to be on the forefront of deploying new technology to make banking with us easier," said Michael Fitzgerald, president and chief operating officer of $1.8 billion NetBank.

NetBank extended an existing Internet-hosting relationship with NCR to include imaging. NCR picks up paper checks from NetBank daily, scans and stores them in a secure RAID warehouse for 90 days, then transfers them to a tape silo for long-term storage.

"This partnership is going to help us leverage the technology to keep our operating costs low, which is good for us and good for the customer," Fitzgerald said. "We're challenged greatly, not seeing people face-to-face, to try to personalize the medium as best we can."

NetBank began including offline check images in statements in October, and added online imaging earlier this year. It plans to extend the offering to PDF-formatted monthly statements, giving customers the option of receiving paper or electronic statements, and saving the bank a lot of time and money.

NetBank's technologically savvy customers should have no difficulty embracing image statements, said Fitzgerald. "If we can get them to opt out of getting their statements in the mail, then we can keep our operating costs low and preserve our value proposition."

Business Bank has similar expectations for online check imaging, which it plans to make available later this year.

Stowell explained, "Now, if a customer wants to research an item, they come into the bank and view the image-front and back of the check or deposit slip, who signed it, signature card-on our computer. Take it a step further and provide access to all these services via the Internet, and now the business customer can pull up that information from their own computer, bringing real value to the technology."

THE HOLY GRAIL

Yet an even greater possibility is to pool individual bank-owned archives into regional or national electronic check exchanges modeled after ATM networks. An example is Viewpointe Archive Services, a joint venture of Chase Manhattan Bank, Bank of America and IBM. Launched last year, Viewpointe aims to speed the exchange of check images, reduce check processing costs and allow consumers to retrieve digitized check images from the Web.

The service utilizes hardware and software from IBM plus "intellectual capital" from Chase, which worked with IBM to launch its own image archive. The Chase archive plus that of Bank of America were folded into Viewpointe. Participating banks transmit check images to either of two IBM data centers-one in Dallas and the other in Boulder, Colo.-via an IBM-provided telecom link. Technology from IBM and its Check Solutions subsidiary enable storage and retrieval of very high volumes of images.

Banks are likely to choose to belong to multiple electronic check exchange networks, just as they belong to multiple ATM networks. "I don't think there will be just one network," said NCR's Kniceley. "Banks won't lock themselves into a single network." That will become increasingly important with new regulations permitting banks to swap digital images of checks rather than shuffling paper. Large banks can spend upwards of $30 million on courier costs alone, making efficiency in that area paramount.

New regulations could lead to what many in the payments industry perceive as the Holy Grail: truncation at the point of acceptance. Check truncation would be a win/win for banks and their customers. Large corporate customers are likely to be willing to pay for monthly statements and check images on CD or DVD. Said Business Bank's Stowell, "Would you rather get back a CD or a DVD with your monthly statement on it, or do you want to get back all that paper?"

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SIDEBAR

Data Center Streamlines loan application processing

For banks, back-office processing is a necessary part of doing business. For Banking Services Group, it is the business.

BSG offers back-office operations management for banks including encoding, capturing, and balancing proof documents, as well as computer operations and network systems administration.

Its customers are financial institutions that handle high volumes of documents and supporting information including mortgages, account applications, credit checks and other financial documents.

During the lifetime of each loan application, BSG clients must organize, track and combine up to 250 pages of loan documents. BSG and its clients were running out of physical storage for paper files. Scanning and indexing documents for electronic retrieval and workflow made more sense than pushing paper from desk to desk.

BSG needed to be able to scan all kinds of documents, not just the easy ones. "Multi-part carbon forms are the worst," according to Bill Braunsroth, manager at Loveland, Colo.-based BSG. "Standard document scanners often turn these forms too dark to read." Faxes were another problem category.

BSG selected a new scanning technology from Kofax Image Products called VirtualReScan (VRS), an intelligent, automated scanner controller and image processing system. VRS automatically and continuously corrects scanner exposure, and straightens, cleans up and sharpens document scans.

BSG's solution employs two Fujitsu VRS scanners. Documents are scanned and indexed at clients' remote locations, then transmitted via wide area network to an archival and retrieval repository at BSG.

Clients scan, index, and release documents using a Kofax software application, Ascent Capture. Optika's Acorde application is the software back-end for archival, retrieval and workflow.

BSG discovered that VRS could consistently obtain clear, readable on-screen images-sometimes even more readable than the originals. Even better, VRS could produce these results without rescanning documents and without manual readjustment of scanner exposure settings. Future plans include automating the HR and Accounts Payables processes.