[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]
The Global Reach of Remote Deposit Automation [NACHA Payments]
Synopsis from Conference Program
Remote deposit capture has not only eliminated geographic boundaries within the U.S., but has also leaped across national borders and continents. In this financial institution case study, organizations interested in global remote deposit deployments learn valuable lessons and gain unique first-hand insights. Speakers examine logistics of global deployment, challenges to overcome to extend globally, impact on daily operations between countries, transportation logistics and costs, bridging differences in cross-border work flows, and the likely affect SEPA will have on work flow processes.
My Observations & Comments
Sadly, I only caught the tail end of this interesting session. Peterson and McGuire explored the pros and cons of remote deposit capture as a means to facilitate inclearing of US dollar check payments from all over the world. An estimated 10-15% of payments to foreign suppliers are checks (particularly mid-market companies that are less likely to maintain bank accounts in a number of countries) and the number is growing as International trade grows. Traditionally paper checks were couriered by foreign banks to US based correspondent banks for clearing, and funds availability varied considerably. With the enthusiastic success of remote deposit capture, many of these international checks drawn on US banks are being captured outside the US and presented as an image for payment under Check 21. No known rule or regulation prevents this.
There are three models: 1) The correspondent banking model (most widely used) leverages existing relationships between correspondent banking partners.For the US Bank, their customer is another bank, facilitating know your customer compliance, and the operational and time savings are clear. 2) The third party aggregator model comes into play when the foreign bank "doesn't get it" and utilizes a third party to gather and scan the checks for presentment. The aggregator makes money by offering availability sooner than if the checks were cleared via paper, not as soon as if the bank presented the items itself. 3) Direct deployment is the third and most infrequent model. Most banks are loathe to provision and support remote capture scanners to the offices of their multinational companies overseas. But in some cases where there are very few but very large check payments (e.g. the Middle East) a US bank will equip the local office of a large customer with a scanner.
The risks are genuine. Some banks have additional fees to cover OFAC suspect review (although whether the check is presented physically or via image, the OFAC risk remains the same). Returns risk for correspondent banking relationships are handled in a variety of ways, depending on the specific agreement between the bank partners.