Check 21: Back to the Future

1
Check 21 Back to the Future

• Correspondent Day 2005

2
Agenda

• Past
• Reflect on Correspondent Day 2004 Survey Results
• Where you thought you would be today
• Present
• Where you are today based on Correspondent Day
  2005 Survey Results
• Best case timeline example for implementing
  imaging
• Bankers Bank Check 21 Success to Date
• Check 21 Peer Group
• Where the industry is today
• Remote Deposit/Merchant Capture
• Future
• The Bankers Bank Solution
• Benefits of this solution to a Bankers Bank
  customer

3
Past/Present

• of banks imaging June 04 52
• of banks imaging June 05 67

4
Past/Present

• Do you currently truncate your customers checks?
  (June 04)
• 65 Yes
• What percentage of your customers still get paper
  checks back? (June 05)
• 0 55
• Between 11-50 16
• More than 50 18

5
Past/Present

• When do you plan to exchange imaged checks?
• 43 no plans
• 19 immediately
• 31 within 1-year

• When do you foresee sending an image cash letter
  for deposit?
• 2 within 3 months
• 12 within 6 months
• 33 within 1 year
• 15 within 2 years
• 38 not sure

6
Past/Present

• Are you planning to exchange imaged items with
  any processor other than the Fed?
• 62 No
• 5 Endpoint Exchange
• 15 Fiserv

• Are you planning to exchange your imaged cash
  letter with anyone other than the Fed?
• 55 No
• 3 Endpoint Exchange
• 12 Fiserv

7
Past/Present

• 2004 Predictions

• May 2005 Actual
• Approximately 850k/day
• Survey says today
• 74 receive less than 10/day
• 6 receive more than 10/day

8
Past/Present

• Lengthen business day to allow for later
  deposits
• 15 Yes
• 55 No
• 30 Maybe

9
Best Case Imaging Implementation Timeline
10
Bankers Bank Check 21 Success to Date

• Autosolution capable of sending/receiving Image
  Cash Letter with the Fed 10/20/04
• First production Image Cash Letter to the Fed
  through Autosolution 4/5/05 Community Bank of
  Boone, IA
• Subsequent banks that use Autosolution in lieu of
  FedWeb to send Image Cash Letter reduces the
  steps in their Fed test plan by 20 and shortens
  the time by 11 days.

11
Bankers Bank Check 21 Peer Group

• 21 bankers from Iowa and Wisconsin and a member
  from the Federal Reserve Bank
• Highlights of the committees accomplishments
• Image Vendor Comparison
• Image Vendor and Image Exchange Due Diligence
  Check Lists
• Remote Deposit Research
• Vendor Oversight Analysis
• Regulatory and Compliance Study
• Valuable discussions and information sharing
  amongst banks and Bankers Bank providing
  direction and clarity for our future product
  offerings

12
Where is the Industry today with Check 21?

• Federal Reserve Bank
• 850,000 images a day worth over 11 billion
  dollars
• Large National Banks
• Large Dollar Items as Images to the Fed
• Marketing Remote Deposit
• Mid-Size Banks
• Out of State Items sent as images
• In State Items as paper
• Smaller Community Banks
• Full image cash letter for deposit
• 3 community banks in Iowa sending full image cash
  letter, several more testing.

13
Past/Present

• Pre-Check 21 Concerns
• Check 21 Warranties and Indemnities
• No known claims to date
• Cost of Substitute Checks
• Fed pricing not a big concern
• Current Concerns
• Image Quality Image Usability
• Duplicate Substitute Checks

14
Remote Deposit
15
Top Priorities for 2005
16
Shift to Electronic Payments

• Since 1979, the U.S. has moved from paper-based
  payments to an electronic payments-driven world
  in 2003.

Share of Non-Cash Payment Transactions
ElectronicPayments 52
17
The Remote Deposit Opportunity
18
Traditional Deposit Problems

• Business Challenges
• Business make banking choices based on branch
  location
• Most businesses face challenges getting deposits
  in before cutoff times
• Financial Institution Challenges
• Expand footprint for business clients (3 Top
  Priority for Community Banks 2005)
• Increase core deposits to fund loan growth (4
  Priority)
• Fend off big bank competition offering remote
  deposit services in your market (5 Priority)

19
The Big-Bank Threat

• Remote deposit is an easy first step into the
  imaging world.  
• NetBank, Bank of America, US Bank,Wells Fargo,
  E-Trade, HSBC, and BBT are deploying remote
  deposit services.
• In 2005, Wachovia plans to market scanners
  aggressively to customers outside its branch map.
• Bank of Americas strategy is to convince its
  corporate customers to close accounts at other
  banks in areas where BofA has no branches.

20
Remote Deposit Buzz vs. Reality

• Buzz
• End-to-end electronic processing
• Reality
• IRD (Replacement Documents)
• IRDs add cost to processing
• Most of the 125,000 image items at Wells Fargo
  are converted to IRDs (Jeffery Kline, SVP)
• 99 of the image items at BofA become substitute
  checks (John Feldman, SVP)
• So why is everyone running to Remote Deposit?

21
In the beginning

• Check 21 legislation was initially viewed as an
  operational cost reduction opportunity
• The true battle is at the customers desktop!!!
• Initially, banks will realize higher processing
  costs to offer Remote Deposit
• Banks that move early into imaging are likely to
  win over new business from slower-moving
  competitors that stick to paper (Alenka Grealish,
  Celent Communications) (2 Priority)
• Theres a real gold mine in offering image
  capture, since it will let big banks like Wells
  Fargo eliminate geographic constraints and go
  after regional or small businesses (Jeffery
  Kline, SVP, Wells Fargo)

22
Drop-Off vs. Courier vs. Remote
Comparative monthly costs for merchant (5 miles
frombranch) depositing 20 checks per weekday.
23
Small vs. Large Business

• Small Business
• Best candidates for RD
• Cost per check highest
• Perfectly suited for Web Remote Deposit
• Need
• Easy solution
• Low cost
• Web RD could handle as many as 600 items per day

• Large Business
• Complex needs for RD
• Need to determine how they will process items
• Central Location
• Multiple Locations
• Desktop application for lrg. volume and
  centralized processing
• Web for multiple locations and distributed
  processing

24
Case Study First Choice Bank

• 120MM Assets
• De novo 2002
• Highly competitive market over banked
• 49 banks present in town of 30,000
• Loan to Deposit Ratio over 95
• 6 loans funded through business deposits,
  yearend 2005 goal is 12
• 30 business signup since Jan 28th
• 1.5 million dollars in deposits in a single day

25
Summary

• Remote Deposit addresses 4 of the top 5
  Priorities for Community Banks
• Helps you retain Core Deposits
• Expand footprint to attract new bus. cust.
• Develop new revenue (New Deposits, Fees)
• Increase productivity using Remote Deposit
• Strategic business opportunity
• Fend off the Big Bank threat
• Reduce your and your customers cost

26
Eric DotsonVP ACH/Remote DepositGoldleaf
Technologies
www.goldleaf.com PH [phone] E-mail
edotson_at_goldleaf.com
27
Future Bankers Bank Check 21 Solution

• Objective
• Provide a cost effective check image clearing
  solution to our customers, building on existing
  systems and the strength of our current customer
  base.

28
Future Bankers Bank Check 21 Solution

• Our Research Shows
• 20 of your items are drawn on our other
  customers. (On-we)
• 12 of items are drawn on credit unions,
  potentially processed by a common processor
• National Correspondent Banks - 6 each

29
Future Bankers Bank Check 21 Solution
Feds Image Clearing Prices for 2005
5 cents
1.5 cents
5 cents
3 cents
30
Future
31
Futureand how it works

• Today
• Send image files to Bankers Bank using
  Autosolution
• We forward those files onto the Fed
• Greatly Improved Availability (99 )
• Operational Efficiencies
• No more reliance on the courier

32
Futureand how it works

• In the Future using the Bankers Bank Check 21
  Solution
• Send image files to Bankers Bank using
  Autosolution
• Prior to forwarding those files onto the Fed
• Pull out all items drawn on our other customers
• Clear those items for a much lower cost
• Send remaining items on to best clearing
  alternative

33
Benefits to You

• Lower clearing fees
• On-we Exchange
• Reduced Cash Letter Fees
• Volume discounts at the Fed
• One cent discount at 50,000 items/day
• Two cent discount at 100,000 items/day
• All adjustments and cash letter issues with the
  Fed would be handled by Bankers Bank.

34
Future
35
Summary

• Please visit the Check 21 resource center on the
  Bankers Bank Web site for your Check 21
  information!