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Unclaimed Bank Revenue

By: Harry Johnson

The financial services industry faces new challenges every day. Many banks are turning these challenges into opportunities for their customer bases. Not only are these banks solving their problems, they also are doing it without spending a lot of overhead. In many cases, they are reducing operating costs, thus creating new non-interest recurring revenue while offering a free service to their commercial accounts.

Sound too good to be true? Not when considering the following facts. Today, many banks are either managing the collection of returned checks manually on behalf of their commercial accounts, or they are outsourcing to a traditional third-party collection agency. These processes are diverting time, money and employee resources from day-to-day customer interactions. Banks may identify this expensive challenge as an opportunity for improvement by simplifying collections of insufficient checks for the benefit of the bank and its commercial accounts. The solution resides with electronic check recovery (RCK).

RCK converts non-sufficient funds and uncollected checks into electronic items and sends them through the Automatic Clearing House network for collection. The National Automated Clearing House Association approved the rule that allowed returned checks to be collected through the ACH network in 1998. By using this system, it becomes easier and faster to electronically re-present the check directly into the check-writer’s account.

Why would a bank want to invest time and effort into a check service with the increasing popularity of credit and debit cards? Well, according to The 2010 Federal Reserve Payments Study: Noncash Payment Trends in the United States 2006-2009, there were 109 billion noncash transactions processed in 2009 with a value of about $72.2 trillion. Of those 109 billion transactions, checks were still the second-highest form of noncash payment, accounting for 22 percent of processed transactions, while debit cards made up 35 percent and credit cards totaled only 20 percent.

Of the $16.2 trillion of checks written in 2009, $127 billion were returned with an average amount of $1,001. This shows that check writing is still prevalent in the United States. Banks and merchants are investing considerable time and money to collect these bad checks with a success rate of only 25–30 percent and in most cases are not receiving the full face value of the check. By electronically re-presenting a check, odds of collecting the full face value rise to 75–80 percent.
This allows banks to offer a new and useful service to commercial accounts, with RCK the recovery process is expedited as well. Checks no longer have to be sorted by merchants and physically re-presented through the check-clearing system. By electronically processing a check the number of additional attempts to process is increased to two, as opposed to one when physically re-presented. This helps to drastically reduce costs and makes the collection of checks for smaller amounts more economical.

Also consider that when the re-presentment is made through the ACH network, funds are collected faster and typically given priority over other paper checks in the re-presentment process. Obviously, electronic check and item recovery help the business’ and the bank’s bottom line by offering a valuable service to customers and eliminating a time-consuming, manual processes. Merchants are able to collect 100 percent of the face value on recovered checks without additional cost. Banks are able to earn recurring non-interest income through a revenue share with the recovery service by charging check writers the allowable return fee.

Implementation of such RCK services is quick and painless. Checks can be routed to the recovery service for processing and collected funds are deposited into the merchants account on a weekly basis. Merchants are provided with reports on returned and collected checks through daily emails or faxes. Additionally, all of the merchant’s returned check activity can be viewed 24/7 through a free online reporting website. This option allows banks to offer “big league” services without neglecting their community-centered focus.

Consistent with that community focus, the benefits of RCK are not just for the banks and merchants, as check writers benefit from electronic check recovery as well. With the increasing use of check verification databases to screen out bad-check writers, customers want to be able to do what they can to be quickly removed from this list. By electronically re-presenting a returned check, the removal process of negative information from check verification databases is speeded up and consumers who have been labeled as bad-check writers have their check-writing privileges restored sooner.

An RCK service allows banks to tap into that monetary reservoir resulting in greater number of recovered insufficient checks for their patrons as well as a sea of liquid assets for the bank.

The reasons for the growing popularity of ACH collection are:

— It dramatically improves collection of bad checks for business customers, typically at no charge to them (the check writer pays). Nationally, bad-check collection averages run about 45 percent. With improved processes and automation, business customers can collect 70–80 percent of their bad items. This is because items can be re-presented twice more as ACH items (vs. once more as paper items) and the re-presentment can be timed to occur on Fridays and paydays, when there are more likely to be funds in the account. This is a significant benefit to the bank’s commercial account holders.

— It creates recurring fee income for the bank.

— Up-front staffing and capital investment are typically minimal, depending on whether the bank uses in-house procedures or outsources the entire process
to a specialist in the field.

Harry Johnson is president of Money Transfer Systems Inc., provider of the checXchange service. He can be reached at 727-499-7002 or harry(at)

Copyright (c) August 2012 by BankNews Media