Remote Payment Capture: Lockbox Competitor or Extension?

Remote Payment Capture: Lockbox Competitor or Extension? By Kathi Plymouth, Vice President, Product Innovation, and Tiffany Trent, Director, Product Management, First Data Introduction The lockbox industry has gone through profound change in the last several years. First, there was the advent of image technology in the early 1990s which streamlined very manual processes. Next, came the introduction of online bill payment and while that channel took several years to take off, vast numbers of consumers are now switching from paper to electronic at the expense of lockbox volumes. Then, the introduction of check electronification regulations and movements such as ARC (Accounts Receivable Conversion), Check 21, and ICL (Image Cash Letter) migrated more paper payments to electronic. With all of this activity, it might appear that the remittance industry could not be more disrupted or become much more efficient. Interestingly enough, the biggest change to hit the remittance industry is taking place outside of the lockbox Remote Payment Capture. For the purposes of this paper, Remote Payment Capture (RPC) is defined as the ability to remotely capture, clear, and post a check bill payment transaction. RPC is an emerging part of the overall Remote Capture market. Historically, Remote Capture information has been more focused on Remote Deposit Capture (RDC) which is the remote capture and clearing of check deposits. This article will more thoroughly examine the impacts of Remote Payment Capture on extending the biller s remittance process. A RPC checklist will be provided for consideration. Lastly, benefits of a successful RPC program will be provided in theory as well as a sample client business case. So what is this emerging piece of the distributed capture puzzle? As stated earlier, the remote capture service typically involves two basic components - capture and clearing. The difference between RPC and RDC is that RPC includes the capture and processing of the bill payment receivable information (in addition to the check image and data). Specifically, it involves the image capture of the check and coupon as well as the data capture of the check MICR line and the OCR scan line from the payment coupons. Bill payment information may also be written on the check. Settlement of the transaction is similar to RDC where payments can be cleared via Image Cash Letter or Substitute check. Depending on eligibility, conversion to ACH can also occur and different Standard Entry Class (SEC) codes may apply based on the authorization process and payment situation. Walk-in Payment Check Conversion Options 1. ARC (Accounts Receivable Entry) If payment is received at a dropbox location (or via U.S. mail) 2. BOC (Back Office Conversion Entry) If payment is provided in-person at a manned bill payment location and converted in the back office 3. POP (Point of Purchase Entry) If payment is provided in-person and converted at a manned bill payment location 4. ICL (Image Cash Letter) for full check truncation and items deposited as an image check deposit

Walk-in Payment Biller Challenges For billers who receive a high volume of walk-in check bill payments at their company locations, there are challenges. Typically, these payments are the most costly of all payment channels due to the manual handling required. Mercator estimates that walk-in bill payments to billers can cost as much as $1.50.* Many times, these walk-in payments are re-shipped to a company s lockbox processing site which creates more processing complexities: JJDeposit float delays one or multiple days JJPostponement of receivable posting JJRegulatory requirements e.g. posting payment within certain timeframes JJLogistics, including shipping costs e.g. payments may be express mailed JJIncreases in customer service inquiries JJGreater risk multiple hand off points, transactions could be lost in transit or be more exposed to fraud JJLack of audit trail walk-in payments may not be distinguished from mail in transactions Depending on the biller vertical, costs related to the above challenges can add up - even to millions of dollars in lost opportunities. When Check 21 and Remote Capture came on the scene in early 2000, the deposit world was ready for transformation. However, a problem still existed for walk-in remittance transactions. The Remote Capture platforms initially focused on enabling remote deposit vs. remote payment capture. While the initial RC systems had some success due to the benefit of expediting deposit float, the information float side of the equation still suffered. In other words, there was no efficient way of handling the important receivable information that needed to be captured, edited and passed along to the client s A/R system. The Solution Remote Payment Capture The vendor community and the industry at large started to recognize that the remote capture and the remittance worlds needed to meld to truly revolutionize walk-in check bill payment processing. By combining distributed capture capabilities with remittance processing system functionality, the lockbox environment is now extended beyond the four walls of the remittance site. The deposit benefits are clear through the introduction of electronic check clearing or conversion: JJReduction in per item check clearing costs JJExpedited deposit float not only through eliminating re-shipping of the deposit but also by introducing alternative clearing methods such as least cost routing JJEnablement of banking relationship flexibility JJIncreased deposit size through longer processing windows The remittance posting advantages that the right RPC solution can bring are equally as powerful: JJExpedited accounts receivable posting JJFewer accounts receivable posting files as mail in and walk-in payments can be combined on one feed JJReduced change management processes since walk-in and mail payments are in the same workflow JJEnhanced audit trail for walk-in vs. mail in payments JJCentralized exception processing

The payback can vary from industry segment to industry segment. Please refer to the case study on pages 7-8 for more details regarding how a Remote Payment Capture solution helped a First Data brokerage client save millions of dollars annually! Considerations for Choosing the Right RPC Partner There are several items to consider in choosing a Remote Payment Capture partner. As a biller, the single most important thing you can do in determining a RPC solution is to establish your goals. While this may seem like common sense, establishing goals upfront will not only enable selection of the right provider but also measure the success of the RPC program. In this manner, the rest of the consideration list is based on various goals: RPC Checklist Expedited Deposit Float and/or Reduced Deposit Fees Check Electronification Options: JJImage Clearing Ability to capture and clear check transactions via image JJCheck Conversion to ACH Ability to capture and convert check transactions to ACH JJ Least Cost Routing Ability to dynamically decide how to settle transactions (ICL or ACH) based on check criteria (e.g. RTN/Routing Transit Number), time of deposit, risk data, and other information. Also known as intelligent routing and may or may not include the ability to dynamically route transactions to more than one depository bank. JJMultiple DDA Processing Ability to deposit funds into multiple DDA accounts for one biller Flexibility in Banking Relationships JJBank Agnostic Solution JJCheck Electronification Options See previous item Expedited A/R Posting JJRemittance Information Capture Image and data JJAccounts Receivable File Format and Export Streamlined Workflow/Process Efficiencies JJConsolidated A/R Posting Feeds Not only combining lockbox and walk-in transactions but including indicators for types of transactions and payment channels JJCheck Electronification Options See first goal listed above JJBusiness Rule Flexibility Ability to perform a variety of lockbox edits including edits on the OCR scan line and dollar amount as well as third party data base interaction (e.g. stop or positive files). May also include tiered levels of transaction reviews (e.g. primary review with secondary approval of exception transactions)

RPC Checklist Enhanced Customer Service JJCommon Client Portal All transaction data and images can be accessed via one web tool. Indicators also included for types of transactions and payment channels JJCheck Electronification Options See first goal listed within table on previous page JJException Decisioning Tools With the same functionality and access for remote payment capture transactions as remittance transactions JJCorrespondence Capture For some verticals, transactions may be accompanied by important documentation. Often times, this documentation is crucial for applying the payment to the right account so the solution may need image capture and transaction linkage of correspondence Risk Mitigation JJVerification Transaction risk is scored (via third party database) for payment acceptance or decline JJWarranty In combination with verification tools, transactions can be warranted providing you with up front funding JJBusiness Rule Flexibility See fourth goal listed within table on previous page Ease of Implementation JJPhased Implementation Roll-out of the RPC solution can occur gradually, ensuring a quality on boarding and agent comfort level JJRobust Training Modules For the remote capture hardware and software JJFlexibility of Capture Device RPC platform may need to have flexibility to work with certain capture devices should such devices already exist and/or are preferred for some other reason JJOne Stop Shopping RPC solution may need to provide both the software application as well as the hardware technology

As a biller, the key is not to choose among the various goals of a RPC program, but rather customize the goals based on your industry segment. Below are some examples of how the goals could be tailored for various verticals. Segment Insurance Brokerage Property Management Telco/Cable Payment Mix Higher $ Much higher $ Higher $ Lower $ Some items ineligible for ACH conversion Non-standard documents may be included Most items ineligible for ACH conversion (e.g. third party checks) Documents may be included Some items ineligible for ACH conversion (e.g. money orders) Payment coupon may not be included Some items ineligible for ACH conversion Investor coupon may not be included Goal 1 Expedited Float ICL ACH conversion ARC or BOC ICL Least Cost Routing ICL ACH conversion ARC or BOC ICL ACH conversion ARC or BOC Least Cost Routing Multi-DDA processing Least Cost Routing Goal 2 Banking Relationship Flexibility Bank Agnostic Bank Agnostic Bank Agnostic Bank Agnostic Goal 3 Expedited Information Reporting Remit info capture A/R file format & export Document capture integration Investor Contribution info capture Investor file format & export Document capture integration Remit info capture A/R file format & export Remit info capture A/R file format & export Goal 4 Streamlined Workflow Consolidated A/R feeds Scan line and dollar amount edits Consolidated A/R feeds Investor contribution/ deposit line and dollar amount edits Interaction with brokerage database for investor decisions Stop and positive file capabilities Consolidated A/R feeds Scan line and dollar amount edits Stop file and look up file capabilities Consolidated A/R feeds Scan line (e.g. corporate or division codes) and dollar amount edits

Segment Insurance Brokerage Property Management Telco/Cable Goal 5 Enhanced Customer Service Common client portal Exception decisioning tools Common client portal Exception decisioning tools Common client portal Exception decisioning tools Common client portal Goal 6 Risk Mitigation Biller verification See goal #4 for remittance processing options See goal #4 for remittance processing options Biller verification See goal #4 for remittance processing options Biller verification and/or warranty See goal #4 for remittance processing options Conclusion Remote Payment Capture is both a competitor and an extension of lockbox. RPC competes with a remittance operation by cannibalizing express mail volumes. However, much more importantly, Remote Payment Capture can be an extension or even a liberator of the lockbox environment. RPC saves valuable time, money and resources through check deposit electronification; automation of information and posting updates; and remittance business rule integration. RPC is not only the next solution to transform lockbox it has arrived. Is your organization ready? The Brokerage Opportunity A tier one international brokerage firm with over 400 branch offices began thinking of ways to radically change the cost and operational structure of its funds processing. Every month, the brokerage firm processed hundreds of thousands of payments through branch locations and two remittance centers. An antiquated deposit process delayed availability and led to lost float revenue and high per item processing costs. JJLogistics costs were in the hundreds of thousands JJInefficient processing cost the firm millions of dollars annually in lost float revenues JJManagement costs for the centers where in the millions JJStaying current on technology would require investments of millions of dollars

BROKERAGE WORKFLOW BEFORE RPC The Challenge: The handling of client investments is core to this brokerage firm s business and is key to client retention and asset growth. To remain competitive, the brokerage firm needed to streamline its funds processing operations to save money; expedite deposit float; and improve its investors experiences. To succeed, the brokerage firm realized it would need a strategic partner who could provide a customized end-to-end solution. It should be noted that while the brokerage firm was processing investment deposits vs. bill payments, it still needed to take the same care in capturing and processing the investor information as the check information. Their problem is similar to what many clients face that accept walk-in bill payments. The Solution & Results: First Data provided this firm with an end-to-end strategic solution that helped the firm achieve its objectives. First Data combined its deep expertise in the brokerage industry with its best in class remittance and remote capture processing solution. First Data worked in conjunction with its RPC provider, Wausau, to help its brokerage client realize major cost savings and increased revenue generation while providing transparency in the process.

The brokerage firm is already seeing benefits. Once fully implemented, the expected gains will include: JJCost savings from closing of two remittance centers - over $4M annually JJCost savings from overnight freight - nearly $400K JJAnnual revenue earned from improved float - between $7 and $10M depending on interest JJGreater efficiency, transparency, improved oversight and management of process JJFaster, easier mail-in deposits and payments utilizing First Data s REMITCO nationwide footprint BROKERAGE WORKFLOW AFTER RPC For further questions, call 302-793-6040 A Global Leader in Electronic Commerce First Data powers the global economy by making it easy, fast and secure for people and businesses around the world to buy goods and services using virtually any form of payment. Serving millions of merchant locations and thousands of card issuers, we have the expertise and insight to help you accelerate your business. Put our intelligence to work for you. 2009 First Data Corporation. All rights reserved. All trademarks, service marks and trade names referenced in this material are the property of their respective owners. 555-584R 4/09