Remote check imaging is giving small community-based banks another tool to compete with much larger, established banks for commercial clients. In 2006, some community-based banks rolled out the service and more will introduce it within the next few months. The imaging technology lets commercial customers scan checks at their businesses and send an electronic image of that check to their bank. The bank then treats the image like a check. Remote imaging both speeds up the deposit and reduces fraud, bankers say. Instead of having to wait days for a check to clear, many checks now clear in hours or even minutes when remote imaging is used.
Remote imaging was born from the Check Clearing for the 21st Century Act (Check 21), passed by Congress in 2003. Check 21 allowed digital images of checks to be treated the same as their paper originals, thus speeding up check processing and allowing for less handling of checks.
Banks were quick to adopt check scanning technology for internal uses. Last year, large banks began offering remote check imaging for commercial clients. Some community banks did as well and a significant number are planning to introduce the service this year.
While there are some upfront costs for new software, hardware and security to create a remote imaging system, those costs are far below bricks and mortar costs associated with building new branches. Many small banks say having remote imaging capabilities can replace the need for branch locations, especially for clients that have commercial checking accounts.
“Remote (imaging) allows banks to expand their capture base,” said Pam Kelly, assistant vice president for Financial Institution Products Corp., a subsidiary of the Wisconsin Bankers’ Association that is based in Madison. “You could be 100 miles away from me and choose to bank with me.”
Layton State Bank, headquartered in New Berlin, is testing its remote image capturing system with a new large commercial client based in the Lake Geneva area, said Carla Breunig, president and chief executive officer of the bank. That client has about $20 million in annual revenues, she said, but declined to name the client.
The bank was competing for “the whole relationship” with the client, Breunig said, and remote image capturing was one of the features that helped seal the deal.
“We needed a way for him to make deposits, but had no bricks and mortar out there,” she said. “This is an example of where we could step out of our market and deal with a much larger customer. And we need those customers to justify what we’re doing (with technology like remote image capturing).”
Layton State Bank will test its remote image capturing system with the new client through the first quarter of this year, Breunig said. If everything works as planned, the bank will likely then expand its test to up to four additional commercial accounts before offering it to other customers.
Remote image capturing will help Layton State Bank develop closer working relationships with important commercial clients, and offering faster and more efficient services that are more easily audited.
“We’re able to work very closely with some of our best customers,” Breunig said. “We’re able to turn this into an efficient way to do that, and we don’t need departments of people to do it.”
Irwin Union Bank, which has one
location in Wisconsin at the intersection
of West Michigan and Plankinton
avenues in downtown Milwaukee, is taking
a similar approach. The bank began offering the service to commercial clients in summer 2006, said Tim Schadeberg, senior vice president and market manager for Milwaukee.
“It’s been received well,” Schadeberg said. “A small percentage of our commercial clients are using it now, but it’s growing. A lot of business owners have been talking about this and (health savings accounts). Those have been the two hot topics for business owners.”
Pewaukee-based Foundations Bank, which opened its doors in September 2005, also introduced its remote image capturing system last year. Heidi Kolton, executive vice president and chief operations officer, said she and her husband, Greg Kolton, whom she founded the bank with, were thinking about imaging even before Foundations opened its doors.
“Anything that you can put in your customers’ hands that saves them time and money is helpful and can give you an edge,” she said. “Owner-managed businesses don’t always have a staff of 30 that can help with the day-to-day stuff. If we can save our clients time, that’s a competitive edge in itself.”
Foundations Bank currently has one client using remote imaging, Kolton said. The bank plans to enroll more commercial clients in the program in 2007.
Foundations Bank has one location, but is planning to have as many as 10 branches in the next five years. Remote imaging will not replace those branches, but will strengthen the services that Foundations Bank brings its commercial customers, Kolton said.
“I think banks will always want bricks and mortar,” she said. “Philosophers have said that the bank branch is dead. But people like dealing face-to-face with people when they need to.”
Citizens Bank, based in Flint, Mich., has one branch office in metropolitan Milwaukee. It introduced remote image capturing in June, 2006, said Dick Hensley, president of the local branch.
Citizens Bank does not view imaging as a tool to attract new customers, but as one of several tools the bank help attract a customer to expand business with the bank.
“Something that would get our foot in the door would be selling them something like an equipment loan, lease or some secondary product that isn’t the driver to a main banking relationship,” Hensley said. “Something like remote capture is a functional tool to a whole relationship.”
Many community-based banks will introduce their remote image capturing services in the first and second quarters of this year.
Ozaukee Bank, with help from three commercial clients, is developing its remote check imaging system now, said Bill Werner, senior vice president of business banking. The system will be expanded to other commercial clients in the first quarter of 2007, he said.
“We want to be sure it is effective and secure,” he said.
Services like remote image capturing can help community institutions like Ozaukee Bank compete with large banks, but Werner said the bank doesn’t view technical advances as something that will automatically bring more clients in the door. Instead, they can help reinforce the bank’s core competencies.
“What we talk about is the electronic distribution channel that enables us to reach electronically between ourselves and the client,” Werner said. “Asphalt isn’t the issue. It’s ‘Do you have the right relationship, the right understanding of the clientω And how can you benefit the client and the client’s relationship with youω’ Now we have the ability to provide those services as convenient and easily as any of our competitors.”
Commerce State Bank, which opened its doors in West Bend in August 2005, is planning to offer remote image capturing to its commercial clients during the first half of 2007, said Joe Fazio, chief executive officer and co-founder.
Commerce State Bank has one location. Fazio said the new remote imaging service will make the bank more competitive for commercial clients with other banks in Washington County that have multiple locations.
“It’s much more cost effective than putting up branches,” he said.
Remote image capturing could make a big difference in Commerce State Bank’s future growth, depending on how its customers accept the technology, Fazio said.
“I might have loan production offices, but I might not need a full-service branch,” he said. “And I might not have to have cash boxes and tellers. I can be much more selective about that (in the future).”
Remote image capturing at other banks and financial institutions has already given Commerce State Bank opportunities for significant growth. The bank recently surpassed the $100 million in assets mark, after little more than one year in business. That achievement was largely due to the bank’s many depositors all over the country, Fazio said.
“I would be surprised if we didn’t have clients in all 50 states,” he said. “It’s (remote image capturing) a great tool for that.”
Remote imaging helps level the playing field with big banks for commercial accounts, because the service operates effectively the same regardless of bank size and location, Schadeberg said. Whether they’re working with a large multi-state or small community bank, remote image capturing operates in very similar ways for customers.
Moving toward an increased amount of digital banking services will be one of the emerging trends in banking in 2007, Schadeberg said. The bank will unveil a redesigned Website later this year that will include enhanced online banking features, he said.
“It’s going to be very interactive and customers will be able to do a lot more on it,” Schadeberg said. “(Banks are) a commodity like wood and paper. We’ve got to differentiate ourselves somehow.”
