In the last two years, the banking industry has
experienced an eightfold increase in the number of institutions using imaging for check
processing operations. More than one-third of all financial institutions will be using
imaging technology by the year 2000.
The window of opportunity for bank imaging is still wide open, but it won't stay that
way forever. Experts predict that the market for check imaging will continue to grow over
the next decade, eventually being replaced by purely electronic payments and storage sometime
after the arrival of the millennium. In the meantime, VARs can expect a wild ride.
How promising are the next couple of years going to be? A recent study by the Durham, NC
based Mentis Corporation, a research firm specializing in the financial services industry, provides
some perspective. "In the last two years, the banking industry has experienced an eight-fold
increase in the number of institutions using imaging for check processing operations," says Mentis
president James B. Moore, Ph.D. He predicts that more than one third of all financial institutions
will be using imaging technology by the year 2000.
The growth in imaging is coming from several directions at once. Early adopters of bank
imaging tended to use the technology to solve a single problem. For example, a bank might have
installed imaging to streamline its loan process, create image statements, or automatically
capture the amounts written on checks through the proof of deposit stage.
Most banks taking this approach discovered that using imaging to solve one isolated
problem rarely proved cost-justifiable. Thus, banks began looking for
additional uses of the technology to help amortize the high costs across multiple solutions
Banks that use IBM technology today have an average of two image applications," says Doug
Halvorsen, worldwide marketing manager for Charlotte, NC-based IBM Check Imaging. Halvorsen
explains that it is difficult to cost justify imaging technology for one application.
In the past, imaging technology was
justified via the displacement of employees. Now, banks are spreading the costs across a number
of applications, such as image statements, proof of deposit, archiving and remittance.
Banks are also justifying the costs of imaging applications externally with increased
fee income, customer satisfaction, and market share. "Banks have an opportunity to create
image-enabled products to market to customers to win their business," adds Halvorsen.
To illustrate where imaging technology is going, it is instructive to
look back to the mid-1980s, according to Dr. Moore of Mentis. At that time,
large banks, in conjunction with vendors, initiated pilot programs to apply imaging technology to
POD systems to increase throughput and decrease costs. Solutions involved mounting image
cameras on high-speed reader sorters. The pilots enjoyed limited success and, more importantly,
generated ideas for new technology solutions. "When you lay new technology over an existing
business process, you have to re engineer the process to adapt to the new technology," says
Dr. Moore. "When the large banks reengineered their systems to adapt to the new imaging technology,
they realized cost savings of 60 to 70 percent with the underlying technology alone."
Large banks which invested considerable sums of money in POD imaging applications began considering
other uses for the technology. They moved to statement printing, which provided customers with
smaller statements that included little images of each check rather than the check itself.
Mid-sized banks began adopting statement imaging between 1993 and 1994.
Vendors began offering lower-cost statement imaging solutions, igniting interest in this second
tier of banks, which had not previously been candidates for the high priced solutions.
We entered a third phase of check
imaging just last year," says Dr. Moore. "The market began to grow strongly as mid-sized
banks implemented check imaging and the solutions designed for large banks became functional."
Imaging solutions for statement printing were less costly
to implement than those for POD because they also included a marketing justification.
Mentis projects strong growth of imaging applications at least through 1997
and predicts that rates of increase
among large banks will decline as the market approaches stabilization by the year 2000.
At the beginning of the next century, the rate of increase of paper check volumes will begin to
decline as electronic alternatives make inroads into check processing operations. Following rapid
acceleration in the use of image applications, adoption of the technology will begin to slow
and the amount being spent for imaging applications will stabilize. Small banks will not
reach saturation levels as quickly as large banks. The low cost of small bank solutions will
encourage further adoption of imaging technology, maintaining rates of increase for a
longer period of time.