Remote Deposit Capture Key to Survival for Many Community Banks, Finds New ABA Survey

Remote deposit capture has become an "essential survival strategy" for many community banks, a factor that will contribute to widespread adoption of the technology by the end of 2008, according to a new study by the Washington, D.C.-based American Bankers Association (ABA). Remote deposit capture (RDC), which enables business customers to electronify paper checks in-house then electronically transfer and deposit images with their banking partner, is appealing to community banks on several levels, the ABA survey found.

Thirty percent of respondents regard RDC as an essential survival strategy, while 24 percent say it fits with their commitment to leading-edge technology. Another 16 percent began offering RDC as a way to cut their processing costs.

RDC also offers community banks a way to expand their geographic footprint without the expense of building branches or installing ATMs, according to Bob Meara, a senior analyst with Celent (Boston). And -- unlike their large, commercial competitors -- community banks' size often makes it easier for them to offer new products such as RDC. "Smaller institutions can move faster and be more agile than bigger firms," Meara says.

"Without committees to answer to, we can make faster decisions and changes to software, and react to customer proposals," affirms John Charette, VP of finance and business technology for East Greenwich, R.I.-based Independence Bank ($46 million in assets). The one-branch bank, chartered in 2003, installed its first customer's RDC unit in 2005. Today, the bank's Cool Deposit RDC program includes 40 customers across six states and continues to expand, Charette notes.

As the cost of technology continues to decrease, and more strict federal fees regarding paper-based deposits are imposed, RDC will gain more traction across the industry, according to experts. While only 16 percent of the 590 respondents to the ABA's survey currently offer RDC, 33 percent plan to implement the service this year and another 9 percent will adopt RDC by 2008 or beyond. This also will spur expansion of related products, the ABA predicts.

RDC Top IT Priority

In fact, RDC has become community banks' top IT priority, according to the ABA. "When we previously asked about technology spending in 2004, remote capture was only beginning to hit most community bankers' radars," says John Hall, a spokesman for the ABA. "Now it is their top priority, surpassing even Internet banking."

Since combining RDC with its in-house item processing service, Independence Bank has grown its items processing volume by more than 500 percent and its core deposits by 35 percent, according to the bank's Charette. "These results, and other increased efficiencies, have helped us to increase the interest rate spread, which is what banking is all about," he says.

While RDC seemingly is necessary to compete, "a defensive strategy may not be the right way to approach remote data capture," Charette adds. "We approached RDC from an offensive point of view. ... We delivered a successful beta in the field and then defined a specific customer base to target -- the small to mid-size marketplace."

And Independence Bank already is sharpening its RDC offering. Previously, customers posted their own items in a receivable file. Now, Charette relates, "Each time our product reads and matches a check image to the customer's receivable system, our software automatically posts it for them." The bank plans to roll out the enhancement by the second quarter, he notes. **