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Small Firms Flock to Remote Deposit Capture
By Johanna Knapschaefer, American Banker — January 16, 2007
When Nevada State Bank started offering remote deposit 18 months ago, executives at the $3.4 billion-asset Las Vegas company expected the service to appeal mostly to large corporate customers looking for convenience and faster check processing.
But the service is being used mostly by small businesses.
The outpouring of interest from small businesses "was really a surprise," said Bill Martin, the president and chief executive officer of the bank, a unit of $45 billion-asset Zions Bancorp. of Salt Lake City.
Remote capture enables business customers to convert checks into digital images and transmit them to a bank for deposit, and the convenience of depositing checks without leaving the office was the biggest draw for smaller firms, Mr. Martin said.
"If a small business has to photocopy every check front and back before an employee takes the deposits to the bank, and go back and trace one if it gets lost, then remote deposit services make sense," he said.
Mark Campbell, Nevada State's corporate sales and service manager, said remote deposit is also a draw for small businesses because the service extends traditional banking hours. It can take an hour to gather checks for deposit and get them to the bank, and without this capability, some businesses end up leaving checks in the cash drawer that don't make it into the system for clearing until the following day, he said.
Nevada State was not the only one to misjudge the market for such a service. When banks set up commercial customers to make deposits remotely a few years ago, large corporations with sophisticated cash-management practices appeared to be the most obvious targets.
Many banks overestimated how many large companies there were to pitch - at least within the bank's area of operations - and failed to see that small-business customers would find the service attractive.
"Doctors' offices, law firms, small brokerage firms, and property management firms love it," said Bob Meara, senior analyst in the banking group at Celent LLC, a Boston consulting firm.
Remote deposit capture has altered the deposit services landscape, according to Mr. Meara, who wrote in a Celent report released last year that widespread adoption of remote capture is close at hand.
Mr. Meara estimated that about 730 million items were deposited remotely in 2006 and predicts that figure will rise to over two billion this year. The dollar volume of remote deposit transactions exceeded $660 billion last year, according to Mr. Meara, a figure he estimates will increase to nearly $1 trillion in 2007.
Zions, a particularly aggressive adopter of remote image-capturing systems for deposits, also owns NetDeposit Inc., which develops remote deposit software.
Nevada State's remote deposit customers use NetDeposit technology to submit checks for deposit via a personal computer and scanning device that can be purchased, leased, or paid for with earnings credits based on bank balances.
Instead of a flat monthly fee for the service, the bank charges fees based on a customer's balance, check volume, and number of items. In the past year the service has generated $18 million of deposits, said Hanan Sabri-Scott, senior vice president of treasury management at Nevada State. As of early December, the bank had served more than 1,100 remote deposit clients, a quarter of whom were new customers.
In July 2005, the first month the service was offered, 39 customers used it to process 1,656 checks worth about $9.4 million. Now the bank has more than 1,000 customers for the service. In November - the most recent month for which data was available - they used the service to process more than 197,000 checks worth nearly $430 million.
Some small businesses use remote deposits to expand business operations across borders without opening another bank account. One small-business customer based in Reno also has offices in Fallon, Nev., about 60 miles to the east. Because this firm deals solely with checks, remote deposit is a convenient service, Mr. Campbell said.
Jeff Bargerhuff, marketing director at Nevada State, said it invested $300,000 in its initial marketing campaign for the remote service but recouped that cost within three months.
The bank began with a soft internal rollout to educate employees about the service and then focused on staff referrals for potential customers.
A few months later it launched its traditional media campaign with 15,000 pieces of direct mail (sending 1,000 a week), print ads, and limited radio spots to increase awareness of the service.
Another Nevada State customer, the Rampart Casino at the JW Marriott Resort, 20 minutes from the Las Vegas strip, sends an average of 200 checks a day, but some days it can send up to 500. Casino executives said it has had no operational problems since purchasing its scanner for the remote service. To avoid accounting errors, the software is designed to prevent users from entering the same check twice.
Debbie Colson, the former cage credit collection manager at Rampart, said remote deposit is a relatively simple service that eliminates concerns about how checks will get to the bank.
"Everything moves really quick," she said. "If I wrote a check today and I bank locally, it would probably hit my bank in two days."
The availability of remote deposit has changed how Rampart Casino conducts business. Though the bank provides Rampart with automatic redeposit capabilities, the casino relies on Nevada State to provide daily electronic notification of any check that does not clear because of insufficient funds, an incorrect account number, or because it is counterfeit. If someone writes a bad check or one on a bank account that is closed, the casino's accounting department can put a hold on the customer's casino account while waiting for the check to clear on redeposit.
"That way they aren't able to cash any more checks until that one clears," she said. "With checks moving via the Internet that quickly, we know within a couple of days if a check will return or if an account is closed." In the past, this process could take a couple of weeks.
Without the need to send checks to the bank by armored car, Rampart is paying less in liability insurance on how much it can transport, Ms. Colson said. "We now have the option of transporting more cash or coins without going over our liability" limit.
Remote deposit also has improved customer service at the casino, she said. Before it started using the service, an employee had to stamp each customer's check and write the account number on it, and when checks were transferred from one area to another, staff members in the second area had to make sure everything was correct before the checks were taken to the bank.
"Now our people spend less time with their heads down handling that piece of paper while the customer waits," Ms. Colson said.
To avoid fraud, Nevada State uses standard contracts to hold customers responsible for their actions.
"Contracts with similar language are standard for all cash-management customers with or without remote deposits," Mr. Bargerhuff said.
The bank also performs due diligence on all its business customers, looking at six months of bank statements to analyze deposit balances and the number of items processed.
Nevada State also has been able to cross-sell remote deposit with other products and services, including online cash management and sweep accounts, which gather excess available funds from a checking account and sweep them into a higher-interest account.
"Remote deposits have really given us additional opportunities and additional customer prospects," Mr. Campbell said.