View PDF of this issue - The Green Sheet

59
RDC from page 1
"The small and mid-sized merchants wanted the equipment
as well, but how does a banker go out and sell to
that merchant and do it cost-effectively? Bam! The ISO
industry was born.
"FIs are not going out to the mass market with RDC.
They're not comfortable taking the liability, so the small
merchant is just sitting there. I've been hearing checks are
dead all my career, but they're not going anywhere."
Ficarra feels now is the perfect time for ISOs and MLSs to
tap into a market that has 20 percent more dollar volume
than credit cards and do what they do best: make merchants
want the equipment and then provide it to them at
a reasonable price.
"ISOs are going to take the risk on the fraud problem, and
they can make a huge amount of money from the B2B
[business-to-business] side, so this is the ideal ISO product,"
he said. "Remote deposit capture is the Barry Bonds
of the check processing industry. It's check conversion on
steroids."
Remote deposit capture 101
The RDC solution enables users to scan checks and transmit
the scanned images or automated clearing house
(ACH) data to a bank for posting and clearing. RDC is a
fully integrated, Web-based electronic payment processing
system that uses a check scanner to convert paper
checks into electronic transmissions. To accomplish this,
five items are needed:
• Check scanner
• Personal computer
• Internet connection
• Check scanning software featuring image cash
letter (ICL) output
• Image exchange agreement with an FI
RDC encodes checks – in lieu of key entry – using courtesy
amount and legal amount recognition (CAR/LAR)
technology that automatically reads the printed amount
and legal or handwritten amount from a check and displays
the results to the user.
It then creates an X9.37 file, or ICL, which is the electronic
file specification developed to support Check 21. It is the
industry standard for electronic check exchange.
The ICL files – complete with check image and magnetic
ink character recognition (MICR) numbers from the bottom
of a check – are either electronically uploaded to a
merchant's FI for deposit or used to print image replacement
documents (IRDs), which are also known as substitute
checks.
With IRD, the physical check is converted to a machinereadable
paper substitute. The IRD contains a front and
back image of the original check and is MICR encoded.
CoverStory
IRDs must also bear a legend stating, "This is a legal copy
of your check. You may use it the same way you would
use the original check."
RDC enables FIs to take advantage of Check 21 by capturing
checks at their earliest point of presentment and
transferring them electronically to a check clearing house,
the Federal Reserve, or a paying bank. Many RDC product
suites today serve as both check conversion and back
office conversion (BOC) tools and are equipped with risk
management and identity assurance software.
Once check images are captured, ACH files (for eligible
items) and/or image-based deposits are prepared. The
RDC system then transmits deposits to an FI via file transfer
protocol over the Internet as 128-bit encrypted files.
Accountability, flexibility
With RDC, checks clear within 24 to 48 hours, compared
to five to seven business days with traditional
check deposits. Nonsufficient funds (NSF) checks can be
presented for payment up to three times, allowing merchants
to collect up to 50 percent more of NSF checks.
Merchants know immediately if there is an error with a
deposited check, thereby increasing the chance to collect
money promptly.
Also, merchants are not restricted to geographical boundaries
since any FI in the United States can centralize all
accounts with RDC. In addition to processing personal
and B2B checks with the same ease as ACH transactions,
remote deposit solutions can process traveler's checks,
money orders, insurance payments, and payroll and government
checks. Check capture uses the same software for
branch and remote deposits.
Recent changes in ACH rules make it possible for banks
and businesses to convert checks to ACH for faster clearing
and settlement. With remote deposit capture, merchants
can:
• Eliminate trips to the bank for check deposit
• Keep existing banking relationships
• Reduce the number of returned checks
• Enjoy faster check processing times
• Make check deposits later in the day
• Use a single provider for both card and check payment
solutions
• Reduce the number of banking relationships for
multiple location merchants
RDC allows ISOs to:
• Offer an additional payment product to merchants
• Provide one solution for processing all check payments
through RDC and BOC
• Promote an end-to-end solution that includes Webbased
reporting for the ISO and its merchants, scanner
deployment, and turnkey marketing resources