E-Delivery: Solving Key Customer Concerns

Financial institutions and service-oriented organizations are working to reduce costs, develop new products and services and enhance the customer experience in order to increase revenue while maintaining and attracting new customers.

One of the most popular ways of achieving these goals is through electronic delivery of customer information, including the presentment of customer statements, notices and associated transactions over the Internet. This can be done for, among others, checking accounts, investment accounts, trusts, bills and credit card statements.

While institutions are striving to reduce fixed and variable costs—now frequently associated with green initiatives—their customers are interested in better, faster, cheaper and safer solutions. Financial services organizations share significant concern over the growing number of cases of identity theft. This concern has been continually highlighted by media reports on identity theft rings and new attempts at consumer fraud.

Concerns of Financial Institutions
Financial institutions have identified three primary concerns with regard to information, its retention, and its delivery to their customers:

• Legal requirements;
• Cost reduction, compliance with green initiatives, and competition; and
• Customer service and reduction of identity theft.

There is some disagreement as to which of these issues is most important and confusion about how to address them—individually or together. There are vendors that specialize in individual solutions and others that provide solutions integrated with third-party components. Financial institutions should evaluate which of these issues is most critical to their competitiveness and address those that will have the greatest positive affect on their bottom line.

1. Legal requirements. The most basic legal requirement of an archive is that it must keep accurate records of customer transactions for a legally mandated period, typically seven to 10 years. In past years, most banks met this requirement with microfilm (for checks) and microfiche, which imposed significant physical storage requirements, thereby increasing overhead. A digital archive is not only more convenient, but also more cost-effective.

In addition to basic retention requirements, efficiency has become crucial over the past decade as litigation has developed into a growth industry in the US and elsewhere. Now, more than ever, banks are asked to retrieve massive amounts of transactional information—including check copies—for legal purposes. Lawyers often seek to reconstruct complex, lengthy series of transactions, requiring complete financial records and check copies for multiple accounts over a period of months or years. Complying with legal requests has become a costly, time-consuming burden for which banks are seldom compensated adequately.

The requirement for expeditious decisions on return items mandated by the Uniform Commercial Code and Regulation CC also creates a further demand for check copies. In order for banks to meet return-item deadlines in an environment of interstate banking (where checks may be deposited far from their "home" processing center), it is becoming increasingly necessary for pay/no pay decisions to be made without reviewing a physical check. One way to support this approach is to provide remote access to check images to those making return-item decisions for such exceptions as stop-pays and unposted items. Offerings such as positive pay, reverse positive pay and payable through drafts, which place responsibility for paying decisions on the bank customer, also create demand for access to check images. Customers frequently want to see items listed as exceptions before making decisions.

To further complicate matters, electronic and card transactions create their own legal requirements. Regulation E (for electronic funds transfer and debit cards) and Regulation T (for credit cards) require prompt and complete resolution of customer transaction disputes.

The Electronic Signatures in Global and National Commerce Act ("E-SIGN"), enacted in June of 2000, eliminated legal barriers to the use of electronic technology to form and sign contracts, collect and store documents, and send and receive notices and disclosures. The delivery of electronic statements in PDF read-only format has been found to be increasingly acceptable by institutions. This legislation has opened the door to alternative methods of archiving documents. Financial institutions are no longer required to retain physical copies and instead can focus on electronic preservation of information, thereby providing additional options to the institutions themselves, and also to their customers.

A digital transaction archive with automated retrieval capabilities permits banks to meet legal requirements without mandating tedious physical searches through boxes of microfilm and microfiche. This not only saves labor but also avoids the risk of non-compliance. Instead of negotiating for time with court clerks and district attorneys, bank managers can instead focus on serving customers.

In addition to the items noted above, recent regulatory directives for the securities and investments industry have intensified. Legislation such as Anti-Money Laundering (AML), "Know Your Customer" (KYC), Basel II and Sarbanes-Oxley were all enacted in response to the public’s growing awareness of corporate scandals, security threats and identity theft. MiFID continued this legislative trend by introducing additional safeguards for investors.

An efficient transaction archive can also serve as a bulwark against check and deposit fraud. Sophisticated systems that detect suspicious patterns and immediately identify suspect items can glean needed information from a well-organized transaction archive. Bank investigators can then use the archive to obtain transaction data and check images so they can quickly confirm the fraud and trace its source.

All of the legal rules, regulations and "best practices" listed above amount to a huge administrative burden—both from a cost and a resource perspective—for financial institutions of all sizes and orientations.

2. Cost reduction, compliance with green initiatives and competition. Among the key reasons for companies to move forward with electronic delivery of information are cost reduction, compliance with green initiatives and the competitive differentiation of products and services to customers who are increasingly savvy.

With increases in postal rates and the cost of paper, as well as escalations in other fixed operating costs, business cases for e-delivery are improving. Numerous institutions have successfully offered incentives to their customers to "turn off" paper statements. Others also mandate electronic statements as the default delivery mechanism for any new account opened, making paper the exception. Some banks have developed creative campaigns to drive conversions to e-delivery of information, such as planting a tree for each account converted, while others rely on more traditional programs such as cash lotteries and giveaways.