Why Smaller Banks Should offer Image Cash Letter Deposit Services
10 May 2012
Farmers & Merchants Bank, a $2 billion-asset bank based in Long Beach, Calif., is launching an image cash letter service. The accompanying press release caught the eye of American Banker resulting in a story today on the topic, Big Check Volumes Aren't Just for Big Banks, a Small Bank Says, written by John Adams. I was grateful to see an important (albeit not terribly exciting) topic get coverage in American Banker. This blog post serves to add some additional insight to Adam’s article, specifically, why the opportunity for image cash letter (ICL) deposit services is so large. In a previous post, I commented on why wholesale lockbox belongs in the headlines even though it has been around as a staple treasury management offering for five decades. The post emphasized that fter all these years, the market opportunity for wholesale lockbox services remains significant. While the majority of large corporations already use bank WLBX services, WLBX adoption falls markedly with the size of business – particularly among businesses with annual revenues below US$250 million. [caption id="attachment_2888" align="aligncenter" width="650" caption="WLBX and ICL Deposit Services are Complimentary"]
[/caption] The above chart shows the number of businesses by annual revenue that utilize bank WLBX services, or not. Why wouldn’t a good size company, say one with $250 million in annual revenue not use a bank for WLBX services? Because, for whatever reason, they choose to do the work internally. A significant number of these companies have their own remittance processing systems. Some are dated, but most are image equipped and are equipped to send x9.37 compliant files to a bank (or could be made to be). Lots of businesses in other words. All are ICL deposit candidates. Offering an ICL deposit capability used to be a hassle. In the early days of image exchange, there were many variations on the x9 standard going around, and accepting an image file from someone’s in-house system was easier said than done. Well, it probably still is, but not nearly as much so. Now, a bevy of solution providers offer this capability. Some offer outsourced item processing services also, making the task even easier for smaller and midsize banks. But most banks have been focused on offering RDC solutions bundled with desktop scanners, even though tens of thousands of businesses don’t want to buy RDC – they already have scanners. As a result, a minority of U.S. banks offer ICL deposit services. And, the smaller the bank, the less likely ICL services are offered. 
Hungry for fee revenue? Opportunity knocks!
[/caption] The above chart shows the number of businesses by annual revenue that utilize bank WLBX services, or not. Why wouldn’t a good size company, say one with $250 million in annual revenue not use a bank for WLBX services? Because, for whatever reason, they choose to do the work internally. A significant number of these companies have their own remittance processing systems. Some are dated, but most are image equipped and are equipped to send x9.37 compliant files to a bank (or could be made to be). Lots of businesses in other words. All are ICL deposit candidates. Offering an ICL deposit capability used to be a hassle. In the early days of image exchange, there were many variations on the x9 standard going around, and accepting an image file from someone’s in-house system was easier said than done. Well, it probably still is, but not nearly as much so. Now, a bevy of solution providers offer this capability. Some offer outsourced item processing services also, making the task even easier for smaller and midsize banks. But most banks have been focused on offering RDC solutions bundled with desktop scanners, even though tens of thousands of businesses don’t want to buy RDC – they already have scanners. As a result, a minority of U.S. banks offer ICL deposit services. And, the smaller the bank, the less likely ICL services are offered. Hungry for fee revenue? Opportunity knocks!