Remote Deposit Capture
by Vicki Smith, Steve Hayes, and Chuck Grigg
Community Bank Advisor, 2007 Summer 

What is “remote deposit capture”?

Remote deposit capture (RDC) is a service that allows the customer to scan checks and transmit the scanned images and/or ACH data to a bank for posting and clearing. Remote capture has moved the check-processing function from centralized bank operations directly to the business customer. Electronic deposits are created using image technology. The business customer is responsible for balancing the deposit dollar amount to the checks before transmitting the deposit to the bank electronically (the system will automatically recognize the check amounts, typically with a high degree of accuracy). The business customer receives an electronic acknowledgment of the deposit and the checks are truncated (retained by the customer) for later destruction. A key benefit of RDC is the customer does not have to go to the bank to make a deposit; plus, they get same-day credit for checks deposited late in the day. Both the business customer and the bank can benefit from remote deposit capture services.

Customer Benefit:

• Minimal investment in technology
• Quicker investment of available funds
• Improved end of month/quarter processing
• Greater employee productivity
• Reduced time spent on deposit preparation and presentment to the financial institution
• Fewer depository accounts and reduced fees
• Faster access to information and improved decision-making capabilities
• Improved availability and enhanced cash flow
• Later deposit cutoff times and faster funds availability
• Reduced return item (NSF) risk
• On-site remittance research capability

Bank Benefits:

• Improved customer relations and customer retention
• Reduced courier fees, transportation costs, and inconvenience
• Limited handling of items presented for deposit
• Expanded geographic market for business customers outside of bank locations
• Accelerated clearings
• Consolidation of banking relationships

System Control Points

Capture (Image): Ensure adequate controls are in place at the point where image capturing occurs (normally at customer’s financial office). Poor controls over capturing can result in poor quality images, piggyback checks (two checks fed at once), high rejection and exception rates, improper indexing, and capturing incomplete or forged documents. Procedures should prevent destruction of original documents before verifying image quality, especially when the imaged information is used to process transactions. Detailed image quality standards have not been set by the industry and are not addressed in the legislation. Unless covered in a separate legal agreement between clearing parties, the party in the clearing process can return an item due to inadequate image quality.

Capture (Check): Customers shouldn’t destroy checks immediately because the scanned checks might not be legible. The customer should retain the originals until they are certain they have no risk relating to the item. The business customer doesn’t want to keep the checks too long, since it will increase the possibility of a check mistakenly being presented for payment twice. Some business customers based their retention period on the completion of the monthly bank reconciliation, which means they would hold the checks for a minimum of 30 days to ensure all deposits are captured and are accurately reflected on their bank statement.

Duplicate Item Detection: Any party who converts an original paper item into an image or IRD must warrant against presenting the item more than once.

Security: The institution’s security risk assessment should include imaging systems. Adequate security controls should be in place (i.e., physical security, device security, workstation security, secure data lines, customer privacy) to protect the imaging system and confidential customer information. Security should provide for adequate separation of duties, input/output controls, and prevent unauthorized changes of imaged data or insertion of fraudulent images.

Training: Adequate employee and customer training is important for proper system use. A lack of knowledge of imaging procedures could lead to quality control issues and misplaced or unavailable data.

Audit: Imaging needs to be scrutinized to ensure adequate controls have been enabled.

Backup and Recovery: Backup and recovery planning should ensure restoration and retrieval of information within recovery time objectives per the business continuity plan. The loss of imaged files can significantly affect business operations if backup electronic or paper files are not readily available. The business may develop the contingency plan to physically transport the items to the bank or to the bank’s backup site in the event of a disaster.

Legal Issues: Banks should be aware of the legal issues and risks that must be considered when offering this service to their business customers, including evaluating the legal implications of converting the original documents to images. The institution may be required to demonstrate through audit trails, access records, and electronic storage practices that the images presented are unaltered. Management should consult with attorneys to discuss such things as record retention and destruction of original documents.

It should also be noted that legal agreements will be required in order to use or provide a remote deposit capture service. The industry trend for legal agreements required by RDC solution providers is to push as much of the risk and liability as possible onto the end user of the RDC solution. A bank providing an RDC solution to a business customer would require the customer to be responsible for all of the risks and liabilities. Additional things to consider when developing an agreement include: hardware and software; device and workstation security; items eligible for deposit; image quality; deposit and file limits; deadlines and recourse for missed deadlines; receipt, rejection, and acceptance of a file; availability and settlement; lost files and transmissions; intrusion and stolen data; maintenance, retention, and destruction of original item; and contingency plan.

Conclusion

The ability to deposit checks electronically has created a new era of electronic deposit preparation and settlement. Banks, as always, should be aware of applicable regulatory guidelines and develop processes to ensure adequate controls are in place to mitigate potential risks.