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November 30, 2005
The Technological Advantage Check 21 Offers for Community Banks
The Birmingham Business Journal featured an article on Check 21 technology adoption by community banks which must make larger banks cringe. That is, if those big bank bankers are humble and self effacing enough, just for a few moments, not to allow their size to delude them into thinking that community banks can’t be serious competition.
Yeah, right.
Check 21 technology allows a bank to capture the image of a check at the point of deposit and present that image and attendant information electronically to the bank on which the check was drawn. A bank can even place a device with one of its customers, let’s say a retailer, which allows that store to capture the information on the checks it receives during the course of business. The store can send this information to the bank electronically and the processing of these payments proceeds immediately.
For the store, float is reduced significantly, and they don't have to run to a branch or mess around with couriers. The bank can not only reduce its paper and processing costs, but its ability to service its clients without physical locations is dramatically enhanced.
Admittedly, it’s early. Technology providers are early in rolling out systems taking advantage of Check 21.
As the Birmingham Business Journal reports, however, community banks can adopt the latest technology because they have no sunk costs in "white elephant" legacy systems which the bureaucracy demands be defended:
John Teta, chief risk officer for SouthPoint, says new operations such as SouthPoint have an extra edge. Starting from scratch, he says, banks can adopt the latest and greatest systems on the market without the need for a costly conversion process and the burden of extensive historical data, or the need for "unlearning" legacy processes and re-training employees.
With "no baggage from the past," new banks are "immediately able to adopt new technology from the start." . . .
With help from Birmingham-based Aquracy Corp., Teta says, the bank also is planning to implement remote image capture technology, installing check scanners in clients' businesses to electronically collect check information and transmit it to the bank for deposit.
Teta says the bank is slated to begin testing the system in the next month or so, with plans to begin accepting electronic files in the first quarter of 2006.
The bank also will set up the machines at teller windows, allowing customer deposits to be electronically scanned.
Teta says the technology will save time and expense for the bank and its business customers, posting deposits quicker, reducing courier expenses and possibly allowing the bank to extend daily deadlines for receiving deposits. "It's good for everybody," he says.
Good for everyone except the big banks, many of whom have been on branch building spree the last few years which makes the so-called housing bubble look tame.
As technology for Check 21 advances and costs decline—-that’s the nature of such technology—-banks will be able to justify placing devices with smaller businesses with less check volume. In other words, they’ll reduce the relative need for branches for an increasing number of their customers.
The competitive advantage of having branches all over town, one of the prime appeals of larger banks, could be neutralized if not virtually erased.
Larger banks will tell you all this is "pie in the sky" or some such nonsense. On the contrary, such a scenario is unfolding, and will do so faster than most can imagine.
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