Magazine article American Banker

Check Imaging ROI Plans Found Wanting at Banks

Magazine article American Banker

Check Imaging ROI Plans Found Wanting at Banks

Article excerpt

Some banks eager to turn check imaging technology into cost savings may be buying new equipment before they have figured out how to garner a return from that investment, according to payment industry executives.

And that cost is not insignificant. A recent study said it would take $10 billion or more to upgrade the industry's check processing infrastructure.

Many financial institutions hope their capital expenditures will be covered by the cost reductions from processing checks as electronic image files instead of as paper items, but that may be somewhat naive. Certainly it's less expensive to move digital images across the country than to fly paper checks, but the big question mark is how long it will take before a meaningful portion of the industry is ready to send and receive those electronic files.

"If a bank invests $10 million in their back office, it's making a bet that check exchange takes off pretty quickly," said Danne Buchanan, the chief executive of NetDeposit Inc., a Zions Bancorp subsidiary that focuses image technology.

But if image does not have that fast start the anticipated savings won't materialize for several years. Balance those against substantial up-front costs, and the balance sheets show money going out now that doesn't generate any kind of noticeable return. "If it takes five, six, seven years, the value of that money never comes back," Mr. Buchanan said.

Adam Dener, a partner at Capital Markets Co. NV, the New York consulting and technology services firm known as Capco, agrees. "I'm not sure there is a payback" for banks looking only at cost savings. He predicted in a January report that the industry would spend $10 billion over the next three to five years.

That money will be used in a wide variety of ways: buying new image-ready sorters and upgrading older sorters; creating bank-to-bank image exchange networks; adding image-capture technology at teller windows and at automated teller machines.

Also on banks' to-do list: deliver image-capture capabilities to merchants so customers can make deposits by transmitting files to the bank. "All this rewiring is extremely expensive," Mr. Dener said.

How do banks plan to make that back? According to Mr. Dener, too many are simply looking at the cost savings. Yes, there are lower costs for transportation and back-office labor. But this will take too long to make a real difference, and not enough banks are devising ways to make imaging a new source of revenue, Mr. Dener said.

"We're not sure that people are really getting the business impact of this story," he said. "This is a business problem first, and everybody is dealing with it as an operational issue."

Mr. Buchanan of NetDeposit deals with a range of banks. …

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