A new age is arriving for the check. As the phenomenon of electronic check deposit, remote deposit capture and Check-ACH payments move to a wider market of merchants, a made-to-order opportunity is opening for ISOs and Acquirers. Check scanning and RDC is moving from the largest commercial customers to mid-size and smaller merchants. Once thought to be the exclusive purvey of banks and financial institutions, RDC is set to take off under the wing of ISOs and Acquirers.
To understand why, consider the card business. Over the past several years, as banks have steadily exited from direct sales, ISOs have stepped in, proving agile and efficient, capably selling down the food chain and capitalizing on high volumes. The same scenario may well hold true for RDC services. In the past few years, the cost for processing paper checks has risen, while the volume of checks has steadily declined. Indeed, as revenue opportunities for core products like credit and debit keep shrinking, RDC may well represent the most compelling new product in an ISO’s portfolio.
The structure of most RDC merchant accounts ensures that with a scanner and simple software, any merchant can electronically deposit checks into any bank account in the country. These solutions include a pooled settlement component in the form of a first-stage clearing house. This approach transforms RDC from a proprietary banking solution into one that ISOs are uniquely qualified to offer—and can do so on their own.
Of course the back-end infrastructure is the key. The most promising model uses a partner bank serving as the ODFI and Bank of First Deposit, thereby providing pooled clearing and settlement. Once that’s done, the deposit is routed to the merchant’s own bank account via ACH. Because this approach is non-proprietary, ISOs can sell the services independently. Other ISOs will choose to sell the services in cooperation with their bank partners, who will see the potential for fee income.
The selling proposition for merchants is certainly compelling. Most current RDC attempts are cobbled together from pieces of miscellaneous deployments, or homegrown by pricey consultants.
Here is a method that will enable your customers to electronically deposit all of their paper instruments of deposit, including business checks, consumer checks and money orders. Current technology decides what method – image exchange, ACH, etc – will work best for that check and the banks involved. Merchants can do the processing in the comfort of their own office: Just scan in the checks, review the dollar amounts suggested by the software, and click a button to make the deposit. Moreover, merchants don’t need to change their banking relationship to change the way they take checks to the bank. But if they ever do, the service travels with them. For ISOs, merchant RDC holds particular promise in opening new doors in the business-to-business sector, where checks, not cards, remain the “currency” of the realm.
Merchant RDC also has advantages for banks, and some 2000 now offer RDC to their large commercial customers. But it is ISOs that represent the most promising new channel. Born and bred to drive innovation into new markets, ISOs are well equipped to take RDC to the next level: the many merchants that even today still take in plenty of checks. Indeed, checks remain a primary method of payment within the economy, comprising about half of the payment pie. But while Americans write tens of billions of checks annually, the processing cost has actually increased 45 percent over the past five years. Something has to give in this scenario, and the likely candidate is the paper check deposit, which, in this electronic age, is still hand-carried to the bank.
It is not hard to imagine how RDC would work in mid-level and smaller businesses, even down to the size of a doctor’s office or neighborhood grocery store. Just add a scanner and ISO-supplied software to an Internet-connected computer, and, with the appropriate processing infrastructure, RDC suddenly becomes another routine back- office function. Any business that leases or owns a credit card or debit scanner could add a check scanner to their merchant account equipment and take checks as easy as cards.
With check imaging now standard practice thanks to Check 21, RDC remains the final frontier opportunity to convert a paper-bound process into an electronic one. For merchants, RDC is an idea whose time is coming - and the same can be said for ISOs.
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