Lay of the Land

By Whaley, Cary | Independent Banker, May 2006 | Go to article overview

Lay of the Land


Whaley, Cary, Independent Banker


ICBA survey shows how community banks manage and process payments

We live in an age of choices. Retail stores are filled with numerous brands of various products. The same applies to payments. No longer is the choice only between cash and check. Now consumers have several payment options-from debit, credit and prepaid cards to electronic bill payments. Additionally, check electronification technology and regulatory changes prompted by Check 21 have given banks new ways to process paper checks.

Today, the challenge for community banks is to stay abreast of all the technological changes, product innovations, competition offerings, and customer needs and preferences.

In response to these fast-paced dynamics, ICBA's Payments and Technology Committee spearheaded the ICBA Community Bank Payments Survey. The first-ever payments survey of the ICBA membership was conducted last fall. The survey was developed to learn more about community banks' payments offerings, strategies and challenges. The survey's 32 questions dealt with payments trends, how banks are processing and managing payments, and what payments decisions they are considering for the future. It addressed checks and related services, Automated Clearing House (ACH) products, debit cards, credit cards and bill payment/presentment.

The survey's goal was to set a benchmark for tracking payments trends and strategies over time, allowing for peer comparisons to help community banks with their strategic direction. Creating a benchmark also enhances ICBA's ability to represent community bank interests nationally.

Payments Management/Strategy

Payments are a growing source of revenue. Twothirds (67 percent) of the community banks that responded to the survey indicated their institution's annual gross revenue for payments products and services has either increased significantly (12 percent of the survey's respondents) or increased slightly (55 percent of the survey's respondents).

Community banks employ a number of management methods for payments. The top survey responses varied for each asset-size group:

* Large banks-Team of payments professionals under executive oversight to manage payments (44 percent).

* Medium banks-Team of payments professionals under mid-level managerial oversight (23 percent).

* Small banks-Executive bank management (19 percent).

When asked about their motivation for introducing new payments products and services, 59 percent of the respondents answered, "to acquire new or retain existing customers." The breakdown of answers to this question by group is as follows: large (82 percent), medium (64 percent) and small (52 percent).

Check and ACH Processing

While electronic transactions are a major part of every community bank's product mix, paper check transactions still compose most of the processing volume for a majority of community banks. However, the trend is for this transaction mix to shift in the next several years from paper toward electronic for most of the banks surveyed.

Community banks are poised to seize the opportunities created by the passage of the Check 21 Act. While 14 percent of community banks have currently adopted check image clearing and settlement, 58 percent are planning to implement the service within the next two years. Remote check image capture is also poised for dramatic growth. Four percent of the respondents have implemented the service and 41 percent plan to offer it within two years.

Most community banks are planning to make notable processing changes over the next two years as a result of image technology. These changes include transmitting check images to their clearing agent (62 percent), re-engineering back room operations (43 percent), and replacing obsolete check processing equipment (29 percent). A majority of the respondents indicated that check image exchange is currently a challenge or one that will be addressed within the next two years.

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