Banks Explore Virtual Branches
November 17, 2004

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A new TowerGroup research report titled, "Check 21 and Remote Deposit Capture: Creating the Virtual Branch”, highlights how Check 21 legislation and check imaging technology are enabling banks to offer greater convenience and control to their corporate customers.

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Because of Check 21 legislation, businesses may no longer have to make a trip to their local bank branch to deposit checks. The combination of Check 21 legislation and advances in check image technology has enabled the capture of images of check deposits at non-bank sites - such as within a corporation's own offices.  These images are transmitted electronically to the bank and reconverted to printed form as "substitute checks" for further processing. 

Several banks in the U.S. have already begun to offer business customers remote deposit capture, in effect creating a "virtual" bank branch that can provide significant convenience and flexibility to those corporate customers.

"While the virtual branch offers both banks and their corporate clients greater convenience and control, banks must take a measured approach in introducing the product to ensure that fraud losses, processing errors, and image quality problems are controlled effectively," said Robert Hunt, senior analyst in the Retail Banking research service at Tow erGroup and author of the research.

Highlights of the research include:

* Several banks are offering business customers remote deposit capture, which they believe creates a "virtual branch." In addition to offering clients greater convenience and cash management control, banks see this move as helping them consolidate the banking business of clients that maintain accounts at multiple banks - while also potentially winning new corporate clients.

* There are several business environments that are well suited for remote deposit products. These include corporations using deposit concentration services, businesses receiving high-value checks, companies receiving checks at nonpayment locations, and businesses using Internet banks.

* TowerGroup believes that banks will succeed in their quest to sell remote deposit products to their corporate banking customers. Although the initial focus of these initiatives should be on clients with low-volume check deposits, the product has future application for higher-volume depositors as banks ultimately implement electronic check presentment - the next stage in the check digitization  process.

* Banks will need to address several issues related to remote deposit capture before widespread roll-out of this technology can occur. These include the defining of legal liability between the bank and corporate depositor, the quality of the check images remotely captured, and new controls to detect erroneous or fraudulent check deposits.

"TowerGroup does not expect remote deposit check volume to grow exponentially over the next several years," said Hunt.  "We do, however, expect a steady volume growth as businesses seek to handle their check deposits more efficiently."