Remote Deposit Capture “Hockey Sticks” Among Small Biz

Banks and small businesses have accelerated their adoption of Remote Deposit Capture Banking in the last 12 months.

RDC is a service that allows one to deposit a check into a bank account without physically having to delivering it to the bank. It involves the scanning of a digital image of a check onto a computer, then transmitting that image to the bank.

The Check Clearing for the 21st Century Act (Check 21), which became effective in October 2004, made this practice legal in the United States. Soon after the passage of Check 21, leading banking institutions made RDC available first to larger corporate customers and the growing success of this practice encouraged banks to increase its availability to small businesses. Michael Wofford, a senior consultant at Brintech, a consulting firm, says that “last year about 50% of banks were planning to offer RDC, now that percentage is probably even higher.”

Banks were initially hesitant to offer the RDC as an option for smaller businesses fearing that the costs associated with selling and servicing it would be too high: specifically, scanners cost between $600 and $1000.

Doug Johnson, the vice president of risk management policy at the American Bankers Association, says, “I’ve talked to bankers that say the cost of scanners is not an issue. It’s more cost efficient for small businesses that do not have infrastructure; they can be more flexible and do not require as expensive technology. They may be able to use scanners already in the business location.”

The benefits of using RDC are obvious: fewer trips to the bank, quicker availability of funds, and elimination of paper trails. Neither fraud nor data security has proved to be a problem.

“I think the network and website used to upload the information is very secure. All of this is then forwarded to the bank for further authorization,” says Wofford.

Generally, the availability of electronic banking for small businesses is on the rise, according to Christine Barry, research director for Aite Group LLC.

The “trend has really gained momentum within the last year when the market was opened up to smaller businesses,” Barry says.

She says an Aite Group study conducted in 2007 found that 16% of 303 small businesses — any business generating under $10 million in annual revenues — participated in RDC. Aite projects that by the end of 2009 that percentage of small businesses will hit approximately 25%. Although no study has been conducted since 2007, Barry estimates that percentage currently stands at around 18%.

We think, based on the success of RDC banking in the small business market to date, that consumers will soon be using RDC.