By David Abbott, Payments Lead, EMEA at Fiserv
The digitisation of payments continues apace around the world, with consumers rapidly adopting technologies such as online shopping, Internet banking and near field communication. As with all technological change, some products lend themselves better to digital transformation than others; the venerable cheque is one such product.
Change is coming to the way that cheques are processed in the UK. After 350 years of faithful work in support of the UK’s economy, and several minor facelifts, it’s finally time for the “analogue” cheque to take its place in the digital-payments ecosystem by way of its capture by a mobile camera or remote scanner. Commonly used in the US, the signing into law of the Small Business, Enterprise and Employment Bill means that remote cheque deposit will become a reality for UK businesses and consumers very soon.
The new legislation signals a radical change in the British financial landscape, as remote deposit capture (RDC) systems become part of everyday banking. Digitising this payment method transforms the way cheque payments are handled for business owners, charities, consumers and banks alike.
A new dawn for the cheque
Until recently, cheques were viewed as an encumbrance by financial institutions in the UK. Cheque use is falling as consumers make use of new payment methods to transfer money and pay for goods and services. Expensive to process, an attempt was made to remove them from use permanently, resulting in a backlash from consumer groups, charities and businesses.
As a result of the reactionary response from users, the UK government asked that banks find a better alternative to abolition, resulting in a plan to migrate to digital cheque deposit via mobile photograph or scanned-image capture. These capture methods vastly improve convenience for the depositor, whilst also accelerating cash flow within the economy. RDC provides benefits for financial institutions, too; cheques can now be used as a tool to drive change in consumer behaviour with regard to the use of mobile apps and improving communications within the finance ecosystem. In addition, banks will have the opportunity to significantly reduce the ongoing costs associated with the processing of cheques as volumes fall, including reduced transportation, processing and return handling.
The gains to be delivered by the introduction of a comprehensive cheque-imaging strategy are projected to save hundreds of millions of pounds per year over time, in addition to which cheque beneficiaries will experience shorter clearing cycles and have access to funds faster than is currently possible. The provision of this technology has been shown to deliver a positive upswing in mobile and digital banking adoption, which in turn releases branch staff to focus on relationship building and sales rather than performing operational duties.
Faster Payments and RDC—a perfect match
Whilst not yet adopted, the new cheque-clearing model, combined with Faster Payments and intelligent mobile-banking services, has the potential to dramatically transform cheque-based credit transfers. The potential for immediate transfer between trusted parties with payers advised when cheques are presented for collection is a relatively simple process to engineer. If a cheque does not clear, payer and payee will have the option to communicate and fix the problem quickly, minimising rework and exception processing.
UK banks are perfectly able to create this new order; they can leverage a combination of US cheque-processing experience combined with debit-card practices, blended with the established Faster Payments tool and mobile- and tablet-based applications. The future can be delivered today by combining proven technology with efficient and imaginative user interfaces; the possibilities for digital data capture are endless.
Fiserv has already seen the value of this technology embraced by depositors in the US and Canada. According to the 2013 Fiserv Consumer Trends Survey, 48 percent of customers use their smart phones to access mobile banking, showing the extent to which consumers look to take advantage of the functionality of mobile. In addition, the number of financial institutions offering RDC continues to grow. In the US alone, financial institutions offering RDC doubled from 1,000 in 2012 to 2,000 in 2013 and are expected to exceed 4,000 by 2016.
With new technology comes new risk
Digitising payment methods may make the process faster and more efficient, but it also creates new opportunities for fraudsters. As a result, any evolution of payment channels must be accompanied by a far-reaching, comprehensive and responsive counter-fraud strategy.
Risk in real-time
To future-proof a fraud-management strategy in the evolving RDC market, the chosen solution must be built on a real-time framework, reporting potential fraud and duplicate presentation as quickly as possible. This in turn will minimise losses, reduce representments and ensure the clearing cycle is both short and efficient. By utilising capabilities that assess depositor, payee and transaction risks in real-time, financial institutions can score cheques and process them through models defined to analyse the context of typical customer behaviour. This will allow banks to rapidly identify potential issues, flag “out of pattern” events and react rapidly, based on defined rules, filters and workflows.
Fight fraud with a layered approach
Monitoring analytics are also an important part of a layered defence. Applying sophisticated mathematics and scoring transactions and other events to identify complex patterns of fraud that could not be defined in a set of rules improves fraud-detection rates. Monitoring analytics leverage customers’ behaviour profiles to identify risk at the customer, account and item level. Rules are used to determine what action to take based on risk-scoring thresholds that are set as part of the organization’s risk strategy.
Balancing Risk and Reward
The use of remote cheque deposit capture technology in the UK represents an exciting opportunity for banks. To ensure that they are delivering the best possible service at the lowest cost possible, financial institutions can learn lessons from the US market in which security and user experience that encompasses reliability and functionality are the key deliverables. If UK banks use their enhanced payment systems, combined with proven technology already working effectively in the US, then the UK’s financial-services industry should be able to deliver a world-leading service.
When rolling out any new technology, there is always an element of risk; however, a considered and well-researched approach should avoid any danger of negative impact on the end user. In summary, if well implemented, it is hard to see how the delivery of a UK-wide cheque image-capture service can fail to deliver a significantly improved service to both clients and the financial-services industry at large.