Financial Institutions Must Rethink Their Remote Deposit Capture Support Models

The cost and support requirements of Remote Deposit Capture (RDC) equipment implementation are luring financial institutions (FIs) to explore outsourcing this operation to experienced vendors. Migrating from in-house to outsourced RDC equipment solutions eliminates the single largest obstacle for widespread deployment of RDC to small-business customers.

In the highly competitive financial industry, where being first to market with new customer services for the lowest possible cost can make a significant impact on the bottom line, RDC has emerged as one of the most important technology developments for FIs since Internet banking. Made possible by the passage of the Check 21 Legislation in 2003, RDC allows banks to clear checks based upon images of the original items accepted at bank branches or merchant points of sale (POS) instead of taking delivery of the physical checks. RDC solutions have been widely implemented by FIs of all sizes over the past three years, and according to Celent’s 2008 State of RDC report, two-thirds of all U.S. banks will have adopted the technology by the end of 2008.

In addition to deploying RDC at their own branches, offering RDC solutions to commercial clients is now critical for financial organizations looking to improve customer retention rates, generate fee revenue and reduce operating expenses. Recognizing RDC’s strategic potential, some banks are waiving RDC setup fees and subsidizing RDC hardware costs for customers in an effort to lure new-business deposits.

However, financial institution-driven deployment of RDC solutions to commercial clients, while up 72 percent in 2008, has been slower than initially forecast by industry analysts. Many FIs that rushed to market with RDC solutions soon realized that widespread deployment to their small and mid-sized client base (SMBs) required significant platform and process preparation. In fact, only six of the top 20 RDC-deploying FIs have launched SMB programs, with the rest still concentrating efforts on larger commercial clients. Specialized customer service, end-user training and equipment deployment models to support large volumes are just a few of the obstacles FIs face before they can efficiently promote mass penetration of RDC to SMB clients. In addition, rapidly declining processing costs and a new generation of low-cost equipment solutions have now cleared the way for mass deployment. Client adoption of RDC solutions reached 382,000 capture points in 2008 and is expected to continue growing rapidly, according to Celent, to reach 5 million by 2014.

With the market poised for explosive RDC growth, FIs are evaluating their customer-support models and, increasingly, partnering with third-party vendors to more efficiently manage RDC deployment. Thirty percent of FIs have either adopted or are in the process of evaluating third-party partnerships as part of their SMB deployment strategy. Similar to the challenges FIs face when offering merchant processing solutions, RDC equipment deployment, activation, training, financing and repair are not core FI competencies. Celent acknowledges this growing outsourcing trend in its 2008 State of RDC Report, declaring that third-party experts “in efficient hardware deployment and support have emerged with RDC-focused solutions so banks don’t have to be in the hardware business.”

By migrating from in-house to outsourced RDC equipment solutions provided by experienced partners, FIs eliminate the single largest obstacle for widespread SMB deployment of RDC. Those who act first are now discovering a significant advantage over their competitors, both in terms of customer retention and attracting new business. However, choosing the right outsourcing partner is as important as choosing the right RDC application. To achieve the true benefits of lower costs and improved service, FIs need to evaluate RDC equipment partners on a wide variety of factors, including cost, training options, quality of service, experience, product breadth and geographic coverage.

To help FIs better understand the RDC hardware solutions landscape and the role of equipment outsourcing, this paper discusses the challenges associated with in-house RDC equipment deployment and management, and highlights the benefits of outsourcing this business function to a turnkey equipment provider. It also discusses several best practices for evaluating potential RDC equipment outsourcing partners.