Banks are throwing away their paper and microfilm and converting to digital imaging. Not only are they saving money and improving customer service, their files are just as secure as they used to be.
It took them a while, but banks are starting to love imaging. To date, 689 US banks have bought imaging systems, according to consulting firm Mentis (Durham, CA 919-403-5000).
Banks big and small do different things with imaging.
"I see banks under $1 billion in deposits quickly adopting imaging," says Dr. Jim Moore, president of Mentis. "They're accepting full proof-of-deposit (POD) imaging." That means they image-process their checks: They scan the checks. They capture the courtesy amounts and read them electronically with courtesy amount recognition or intelligent character recognition software.
The recognition success rate hovers around 40%. That's OK with community banks because they're saving clerks that amount of typing. Simultaneously or in a second pass they capture the MICR (magnetic ink character recognition) line on each check so they collect the bank and check information it contains.
They don't have to bat 1,000 in proof-of-deposit processing because they're making other use of their check imaging systems. They use them to create monthly statements with check images instead of sending customers back their canceled checks. This saves money on postage.
They archive the check images for customer inquiries and anything else they can think of. For example, some banks comb through checks for evidence that customers are banking elsewhere. Then they try to entice those people with free checking or some other offer.
Big banks (over $4 billion in assets) rarely use imaging to process checks -- 21% do according to Mentis. There are two reasons for this. One is that it would require a huge re-engineering at their operations centers or at the service bureaus like EDS that process their checks for them.
The second is that they can't cost-justify imaging their proof-of-deposit function. "Right now, cost-justification rests squarely on the shoulders of cost savings," Moore says. To save money, a big bank would have to get at least 70% character recognition accuracy. The best CAR and ICR systems made for big banks (by IBM, Unisys and NCR) can accurately recognize 53% of check courtesy amounts.
But large banks use imaging in other ways. Most often, they use it for corporate cash management services. Here, they second-pass scan the checks and offer the images to companies on-line and on CDs. This helps the companies reconcile their accounts and prevent fraud. The beauty of offering image-enhanced corporate services is that banks can charge extra for them and let the customers pay for the new scanners, CD recorders and other imaging technology.
Other large-bank imaging applications include credit card and mortgage processing. Banks are nervous about putting the image of a signed mortgage application on a network for all to see, but they're image-processing credit bureau reports, W-2s, deeds and scads of other documentation to make loan officers and underwriters more efficient.
The ranks of mid-size banks are shrinking 20% a year because of mergers and changes in the industry. About 9% of mid size banks -- between $1 and $4 billion in deposits -- use imaging for proof-of-deposit and 18% use imaging for other purposes.
Imaging's in the Cards at Texas Independent Bank
Texas Independent Bank (TIB) in Irving is the largest of the 17 bankers' banks in the country. A bankers' bank handles check processing, data processing, loan servicing, investment banking, etc. for other banks. TIB serves banks in Texas and New Mexico.
In their credit card area, they service other banks' credit cards. The card will say "First National Bank of Wapperhammer" (we're making that name up), so the customer thinks he's getting the card from his bank. But when he mails his credit card application in the postage-paid envelope, it goes straight to Texas Independent Bank.
Usually TIB does everything from approving or rejecting the application to sending letters and statements to collecting late payments. In some cases, the bank makes the credit decision and then turns the account over to TIB. The two banks split the income.
TIB services 80,000 credit cards. Each card has an application, a credit bureau report, an approval letter and possibly customer letters and other documents (such as corporate resolutions for corporate cards) associated with it. TIB keeps these documents for seven years after an account closes. All of these files used to be kept in paper form. With TIB constantly buying 2,000-card portfolios, they were jamming every closet and room with these files.
"I had to do something," says VP Steve Simpson. "Every time you walked into the building, credit card files were falling on your head.
"When customers called with questions, our customer service reps had to sprint to a file room, find the file and sprint back. I was buying them new running shoes all the time. Then when they were done with a file they had to go put it back."
Now they image the files. One "prepper" spends all day removing staples, organizing the paper and readying it for scanning. Two scanner/indexers scan the paper through two Panasonic (Secaucas, NJ 201-348-7000) KVSP505 40-ppm scanners. They process 15,000 to 20,000 pages a day.
They use MacroSoft's (Rochester Hills, MI 810-853-5353) MacroImage software to handle the scanning, indexing and storage of the scans. It runs on a Compaq Proliant server.
The indexers type a Social Security number into the MacroImage software for each file as they scan. That's one of seven fields TIB uses to identify each file. "MacroImage has a smart indexing feature," Simpson says. "It's fantastic. You click on the Social Security number and MacroImage reads your customer database, finds all the other information and autopopulates the other six fields."
He likes the software's annotation features. "Anything you can do with a physical document you can do on-line," he says. "You can attach a sticky note, highlight a field, write a note on it. You can pick out any color or thickness for the highlighter."
He's happy with security -- the software offers nine levels of it. For example, only certain supervisors are allowed to see employees' credit card applications and credit reports.
The customer service reps all have the MacroImage software on their NTs. If a customer asks for a copy of a letter, the CSR can fax it straight from his or her PC.
Files are stored first on the Compaq hard drive. When the hard drive hits about two gigabytes, Simpson shifts the files to a
5 1/4" optical disc using a Hewlett-Packard (Palo Alto, CA 415-857-1501) SureStore recorder. The MacroImage software copies the files twice onto optical discs -- one for the jukebox and one to be sent to a disaster recovery site -- deletes the files from the hard drive and updates the database. This takes about six hours. While this is going on, everything else on the system keeps working in the background, a tiny bit slower.
He puts the discs in an HP 80fx optical jukebox. Retrieval times vary between eight and 15 seconds, depending on whether or not the requested disc is in a drive and what type of computer the person is using.
TIB paid about $90,000 for the whole system -- 60% on hardware and 40% on software. "I can guarantee I've seen cost savings," Simpson says. "The cost of storage has dropped. I was physically out of space. I didn't have another closet or office to use. Now I've turned old file rooms back into offices."
The imaging system has been in place a little over a year. There have been a few minor setbacks. One was that after about six months, the scanners started "piggybacking" -- taking more than one sheet at a time. "I called Panasonic and they shipped me two new scanners," Simpson says. The replacement scanners were free for a year. In six months he'll have to buy a warranty. "That's worth doing because these are $9,000 scanners," he says.
Another problem has been the jukebox management software. About once every two weeks (usually when he's burned a new disc) the software misplaces the jukebox's address. "I'll have to turn off my PC, turn off the jukebox, eject all the media, turn the PC and jukebox back on and wait for the software to find the jukebox, then re-install all the media," says Simpson.
Bill Payment Simplified
For BankBoston
BankBoston (then called The Bank of Boston) was one of the first banks to buy an imaging system. In 1980 they began using IBM's ImagePlus software on their mainframe. The applications were IRA documentation, corporate deposit documentation and stock transfer transmittals and instructions. They're still being used today. They're not client-server, they don't have scroll bars and they don't have cute buttons. But they work.
Last July, just before its merger with BayBanks, the $60 billion regional bank converted its accounts payable department to imaging.
Here's how the bank pays its bills now: Incoming invoices are batched and sent to data processors in the AP department. These people type information from the invoices into the accounting system. That information is downloaded to the bank's imaging system, Ascent Capture from Kofax (Irvine, CA 714-727-1733), and is used as an assist tool in indexing. It would be nice to OCR the invoices. But since they come from 17,000 different vendors who all put amount, payee and other information in different places, OCR is out of the question.
The paper -- 3,000 to 4,000 sheets a day -- goes to the scan station, a Windows 3.1 PC running Ascent Capture and a 21" Hitachi/NSA (Westwood, MA 617-461-8300) color monitor.
The scan operator feeds the paper into a Bell & Howell (Chicago, IL 847-357-0630) 6338 model 45 ppm scanner. "We started out with a person who'd never scanned before," says Bob Nowak, director of workgroup technologies. "He's done a great job getting paper through that scanner. He takes pride in his job and has figured out ways to get around the hardware.
"Because the invoices come from the outside, we can't control the paper," Nowak says. "We might receive part seven of a seven-part form or we might get a laser original. Scanners don't like that. Colin has learned to predict what problems will occur with each paper type and to set the scanner to adjust for them." Ascent Capture also lets Colin delete an image, rotate a page, delete a batch and do other image editing functions.
Then two index operators index the documents. They call up the items and verify that the numbers on the image and the transaction record are correct.
Nowak would like to reverse this workflow and image the items first, then key in the transaction data. They didn't do this in the beginning because the installation took place right before the merger. They knew that would double the volume of invoices and changing the workflow then was considered too risky.
The invoices are stored for 90 days on a magnetic disk hard drive. Then they're archived onto an HP 160fx jukebox. They chose this jukebox because it's industry standard. They fill about a platter a month. The invoices must stay in storage for seven years.
Retrieval time is two seconds for items in cache and 20-30 seconds for items on the jukebox. "That's slow in the image world," Nowak observes. Ascent Storage software manages the jukebox. Right now it's running on a Novell file server, but they're switching to NT.
BankBoston spent $150,000 on hardware and software for this system. "We've already gotten a return on investment by reducing retrieval times," Nowak says. "It used to take a half an hour to a couple of days to find an old invoice. We had four people doing retrievals.
" These people are now doing other things. "There's such a high turnover here, we didn't go in with the idea of clerk-killing," he says.
The bank has other applications on the runway. A Trust system under development will be a backfile conversion of paper and microfiche.
"We have 17 million pages of information on 35,000 customers," Nowak says. "If you stacked all that paper up it would be as high as a 1,400-foot building. The average file is somewhere between 4-5 inches thick."
Imaging Makes New Services Possible for Union Bank
Union Bank, Los Angeles, uses imaging to offer corporate customers a variety of new services they couldn't offer before.
The bank offers check images and reports on CD-ROMs. They provide on-line check inquiry. They offer positive pay, a technique used to prevent fraud.
Positive pay lets companies discover suspicious checks before they clear. The company sends its bank a daily list of checks it's issued. The bank compares that list with the checks that come in for deposit against that account -- usually this is done for specific accounts such as payroll. The bank sends the customer an index of checks that don't match the customer's list.
The customer can retrieve those checks on-line. The bank makes this possible by using IA Corp.'s (Emeryville, CA 510-450-7000) CheckVision software. Both bank and corporate treasurer run the software, which lets the company download check images from the bank's server.
Usually in positive pay, companies have to call or fax in their pay/no pay decisions. In Union Bank's application, there are boxes below each item. The corporate treasurer just clicks on the right box and the decisions go straight into the bank's database.
The bank processes all its checks normally first. Then in a second pass through NCR 7780 transports (the bank has nine of these in three locations), check images are captured. Tens of millions of checks a month are imaged.
A reconciliation process makes sure checks captured for posting have also been imaged. The check images are exported to the CheckVision system during the time that bank and customer have agreed to on-line check access.
Union Bank uses Young Minds' (Redlands, CA 909-335-1350) CD-ROM Mass Production System in conjunction with CheckVision to write the check images onto CDs for customers. Usually customers want their checks once a month for accounting purposes. Some also ask to receive their monthly statement on a CD, to help them better reconcile their accounts. One large client gets at least one CD a day because they cut millions of checks every month.
The bank's on-line check inquiry service, which again happens with CheckVision, is similar to positive pay. But the customer is not limited in the items they see. They can look at all of their checks. They can zero in on MICR line information if they want to.
The checks are archived onto three-tier storage: an NCR Unix RAID array, a DISC (Milpitas, CA 408-934-7000) 2.2 terabyte 5 1/4" optical jukebox and a StorageTek (Louisville, CO 303-673-5151) tape library.
"This image project wasn't simple, but it went smoothly," says Doug Goelz, VP of commercial marketing services. "This is not a casual exercise, you have to devote time and people to it. Not a lot of people, but people who do nothing else all day." Union Bank had 20 people working full-time and part-time on it.
One challenge the bank was faced with was customer acceptance. "It's easy for the bank to reconfigure its systems, but it's a little harder for the customer." he says. For the customer, it's not part of their daily business, it's something they have to do because their bank wants them to.
"Everybody wants the check immediately," Goelz says. "After the first day a 20-second response time seems slow." They've cut the response time for their biggest client down to five seconds by using ISDN lines.
Right now the bank is not saving any money with imaging. In fact, they're charging more for their new image-enabled corporate services.
Union Bank's next step is to image and archive every check that comes into the bank and make the images available to their customer service reps. This will save time and money searching for paper and microfilmed checks.
