Few people consider what happens to their cheques when they make a deposit at an ATM. But there is an unimaginably complex back-end process to handle that piece of paper once it gets sucked into the machine.
Financial institutions spend billions on paper care – money that ultimately comes out of customers’ pockets in service fees.
Wouldn’t it be far simpler – and cheaper – if paper were eliminated from the payment process?
It was this idea that prompted the development of “intelligent deposit” technology by NCR Canada’s research and development centre in Waterloo, Ont.
Featured in NCR’s line of ImageMark ATMs, intelligent deposit technology replaces paper cheques with an image file.
Already deployed in the U.S. and Europe, the imaging-enabled ATMs will likely start appearing across Canada in two to three years.
The current “dumb deposit” system is a wildly inefficient and redundant process, according to an NCR executive. “Banks have to send a secured courier every single day to retrieve cheques from the ATM and take them to a central processing site,” says Brenda Bowman, global strategic marketing manager at NCR.
And that, she notes, is only the beginning of a complex, costly process. For a straightforward deposit, the cheque has to be scanned, inspected, keyed, batched and couriered off by the presenting bank to a central payments body, where it goes through a similar process, and then again by the paying bank.
More complex deposit transactions can involve multiple financial institutions in different jurisdictions. “Depending on the bank’s infrastructure, there can be 14 to 25 ‘touch points’, or times, a human being processes the paper,” says Bowman.
The costs in human labour and transport are immense. “It’s impossible to describe how complex it is to move around these volumes of paper,” says Carmi Levy, senior research analyst at the Info-Tech Research Group in London, Ont. “There are entire industries that work almost invisibly to move cheques overnight.
Cargo jets filled with nothing but giant bags of cheques are used to move them to where they need to be.” NCR’s technology removes the complexity of paper processing by capturing the cheque’s image at the point of acceptance, be it an ATM, property management office or retailer. Once the cheque is fed into the machine, the hardware reads the micro-encoding on the cheque, scans it, and converts it into an electronic image and financial record. The customer receives a receipt showing a thumbnail image of the cheque with additional information such as date and amount underneath it.
Instead of physically moving the paper through the clearing system, financial institutions can process the transaction electronically over shared networks. Software can be used to perform automated checks and validations that required human interventions in the past. Same-day clearance of a cheque can be achieved, instead of waiting the current two to twelve days.
Both customers and financial institutions benefit from this accelerated process.
“Reducing floats – the time lag between cheques being received and funds being made available – makes the entire transaction chain more effective,” says Levy. “Money doesn’t have to sit around waiting for things to happen. It becomes more active and dynamic.”
The technology also eliminates “empty-envelope” fraud, a low-end scam favoured by broke college or university students who make an ATM deposit without an actual cheque. Below a certain threshold amount, some banks will provide small amounts of cash before clearing a cheque – or noticing there isn’t one in the envelope. The problem is significant, but banks don’t tend to talk about their fraud figures, says Bowman. “I didn’t hang around a bad crowd during my university days, but I know of a few people who did this,” she says.
In the U.S., legislation called Check 21 was passed in 2004 to recognize imaged receipts as legal tender, thus clearing the way for electronic processing. In Canada, similar legislation called Truncation and Cheque Presentment (TECP) is slated to begin in 2008, with full national implementation expected to be complete in 2009.
Few legal challenges have been made in the U.S., where NCR’s technology has already been deployed by banks and big chains such as 7-Eleven and Kroegers, says Bowman.
However, financial institutions will need to do some customer education prior to roll-out in Canada to ensure they understand and accept the technology, warns Levy.
“This adds features that have never been there before, and fundamentally changes the interface between the customer and the ATM,” he says.
People will wonder if the imaged receipt of the cheque is legal, if it should be kept, if the original check will be sent back to them with their statements, and so on.
“This is just an opinion, but I imagine there were probably a few little old ladies who called to find out what was going on when this technology was first rolled out in the U.S.,” says Bowman.