White Paper Excerpt:

In the United States, financial institutions, on average, derive 30-40 percent of their revenue from payments. Therefore, the massive transformation from paper-based to electronic-based payments processing is putting financial institution profitability at risk.

While Check 21 enactment in 2004 set many of the payments industry changes into motion, a number of other factors over the past decade have had a material effect on paper and electronic volumes. Increased debit card use and a variety of practices that convert checks to ACH transactions (ARC, POP, WEB, TEL, BOC, etc.) have dramatically reduced the volume of checks processed through the high fixed-cost paper processing infrastructure.

Responding to all of these events has required a significant investment, in both dollars and manpower, from financial institutions of all sizes. Institutions have managed the changes using different strategies and senses of urgency. But, despite their different approaches, it is crystal clear that there can be no bystanders. Every financial institution must adapt to the changing payments landscape.

Dealing with declining check volumes is a particularly difficult pill for many institutions to swallow. Customers are expecting faster availability of funds and lower transaction fees from the more efficient electronic process. However, managing unit costs of dual paper and image-based processes during the transition is a daunting challenge. Wholesale changes and reengineering are required not only for day 1 item capture, but also the day 2 returns and adjustments that have traditionally relied on the custody of physical items that will no longer be available.

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