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Remote Deposit Capture (RDC) is an easy three-step process of scanning, verifying, and depositing a check. It reduces the time required to deposit checks and simultaneously facilitates savings by eliminating the cost of going to the bank, photocopying checks, purchasing deposit slips, dedicating employees for depositing checks, and many other business activities.
Our research reveals that the money lost by having checks sit around outweigh the costs of merchant RDC. The benefits also include improved cash flow, same day ledger transaction, enhanced customer service, and the convenience of depositing checks in-house.
RDC has become a necessity because paper checks still form one of the most popular methods of payment; accounting for around 75% of initial B2B payments. Around 30 billion checks were written in 2006 alone. The conventional process of depositing checks means that a business loses a lot of time and money. As RDC can drastically reduce the time and cost of depositing checks, almost every bank is now offering RDC to cater to new customers as well as to retain existing ones.
RDC has shown an impressive growth rate of 70% from 2004 to 2008. The process was initially adopted by banks and financial institutions as branch deposit capture. This was followed by the adoption of the banks commercial base wherein the major targeted segment was big businesses where banks held their core deposit and asset base. As banks turned their focus to merchants, they initially targeted small and medium size businesses with annual revenue of $1 million to $25 million.
While RDC adoption has lagged behind expectations with 2% in 2007, this market segment is now on the upswing with its current adoption rate at around 30%. Micro business segments with annual revenue of $25,000 to $1 million account for 70% of all printed checks, and promise to be an attractive market if banks can learn how to crack it.
Early adoption of large established treasury and cash management customers provided low hanging fruit for banks. But these customers represented a small percentage of the banks total commercial base. Banks were content with their initial efforts that RDC was available for customers who required the solution. The smaller banks, community banks, and credit unions saw the opportunity missed by the larger Fis and slowly began to enter this market by first becoming a referral bank for their core processor and eventually becoming a processing bank.
With the systems in place, banks began focusing on small businesses. As the technology stabilized, the cost dropped and banks could be innovative with the business model, placing RDC with almost any customer. Realizing that one size does not fit all, large banks also launched solutions for small businesses.
Banks can benefit by viewing RDC as a means to an end. Electronic payments have increased at an annual growth rate of 12.5%, while the use of checks is declining at a rate of 6.5%. The pot of gold at the end of the rainbow is not how many scanners the banks can deploy; rather, RDC is the first step to expand into other merchant payment solutions. This is an area in which banks wish they could do better.
As most banks have realized that one size does not fit all, the development of solution for businesses or merchants with low volume checks or low deposit amounts can create a niche segment for RDC adoption. Thus, innovative product offerings will play a major role in the development of the RDC market. Moreover, the integration of industry participants, i.e., the banks, scanner manufacturers, and application service providers will help them to provide more effective and cost saving solutions.
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